The Economy – Oct 28

Click on the headline (link) for the full text.

Many more articles are available through the Energy Bulletin homepage.

The ‘Informal Economy’ Driving World Business
WHYY, National Public Radio (NPR)
More than half of all employed people worldwide work off the books. And that number is expected to climb over the next decade.

“Estimates are that the informal economy around the world is [worth] about $10 trillion a year,” says journalist Robert Neuwirth. “That’s an astounding figure because what it means, basically, is that if the informal economy was combined in one country, it would be the second-largest economy on Earth, rivaling the United States economy.”

Neuwirth details how globalization has helped the growth of the informal off-the-books economy in his new book, Stealth of Nations. He traveled to places like Brazil and Nigeria to see firsthand how the underground economy works.

In Lagos, Nigeria, he describes a bustling, hyper-entrepreneurial environment where almost everybody is doing business without oversight or support.

“About 80 percent of the workforce is part of the informal economy, and that runs the gamut from people selling vegetables at the side of the road to major corporations like mobile phone companies that do all of their business through informal kiosks that are stands at the side of the road,” he tells Fresh Air’s Dave Davies. “It’s huge.”
(26 October 2011)
Recommended by Sharon Astyk who writes:

“Ín _Depletion and Abundance_ I spend a lot of time talking about the ways that the informal economy is actually more robust in some ways than the formal economy, and the ways that informal economy activity can strengthen our home economies. I argue that in the Developed world, the informal economy is hidden or “housewifized” out of existance – we think of it as a small portion of our life, and not significant, but in fact, the informal economy is enormous and critical.”

Rethinking GNP: From welfare to cost
Joshua Farley, Al Jazeera
Gross National Product is a blunt tool that largely fails to take into account environmental and human well-being.
—
Aside from the nation of Bhutan, which strives to maximise Gross National Happiness, virtually all countries in the world single-mindedly pursue endless increases in Gross National Product (GNP), which measures the market value of final goods and services produced by a country in a given year. Economists and politicians alike treat GNP as the best measure of economic welfare. In the United States, GNP growth has averaged about 2.5 per cent per year since the recession ended in 2009. At this rate, GNP will double in a generation, and quadruple in two. Nonetheless, numerous surveys suggest that most Americans believe their economic welfare is declining. Something is clearly wrong.

In fact, most serious economists recognise that GNP is a fairly poor measure of economic welfare. Economist Simon Kuznets first developed the indicator during the 1930s and 40s as a measure of economic activity, and explicitly warned that it should not be confused with economic welfare. Although there have been numerous efforts to transform GNP into a more accurate measure of welfare by adding costs and benefits that are currently ignored, most economists and policymakers stick to GNP as the most useful indicator available. Indeed, GNP is a useful indicator, but has been greatly misunderstood. One must be very clear about precisely what it measures: It does not measure welfare, and is only a poor measurement of activity. GNP is, however, quite useful as a measure of monetary costs.

At first glance, such a statement appears preposterous. Nations with higher GNP are obviously better-off than nations with lower GNP, on average. However, GNP is by definition a measure of what we pay for the final goods and services purchased in a year, and is therefore explicitly a measure of costs. True, costs often correlate with benefits. More expensive products are often better than less expensive ones – but not always, and only a fool would try to maximise what he pays for something. It is also true that GNP is a measure of income from the perspective of those who receive those payments. To determine whether GNP is something we should strive to increase or decrease requires closer analysis.

Health and wealth

Health care offers an excellent starting point. If GNP is a measure of economic welfare, then it follows that the US, which spends 17 per cent of its GNP on health care – almost 50 per cent more per capita than any other country in the world – must have the planet’s best health care system.

However, by virtually any indicator of health outcomes – including life expectancy, infant mortality, maternal mortality, and physician visits per capita – the US has among the worst health care outcomes of any developed nation. The rapid growth in health care expenditures is widely recognised as one of the most serious economic problems in America today. Yet no one is cheering.

Joshua Farley is an ecological economist and Associate Professor in Community Development & Applied Economics and Public Administration. He holds degrees in biology, international affairs and economics.
(25 October 2011)
Joshua Farley is a fellow of Post Carbon Institute. -BA

The Third Industrial Revolution — an interview with Jeremy Rifkin
Todd Miller, San Francisco Chronicle (blog)
What was the real cause of the Great Recession? More importantly, in a country accustomed to robust rebounds from burst bubbles, why is our economy stuck in neutral?

In his latest book, The Third Industrial Revolution, economist and author Jeremy Rifkin argues that the crash of the US housing market was not the proximate cause of the Great Recession, but was instead an aftershock of crude oil hitting a price of $147 per barrel oil in July 2008 – 60 days prior to the crash of the financial markets.

Mr. Rifkin makes a compelling case that our economy reached the end of the second industrial revolution in the 1980’s, and has been largely sustained by debt and the consumption of savings ever since. He argues that the kind of growth witnessed after the first and second industrial revolutions will be impossible to achieve without a third energy-communications revolution – one that leverages Internet-esque smart grids to transition from a centralized “elite” energy paradigm to a highly granular, lateral model. He contends that, as was the case with the first two industrial revolutions, the third revolution will be the foundation of the next great wave of economic growth.

… Todd: So if we can, can we start by framing the discussion with the cause of the Great Recession. And I understand that your contention is that the Wall Street crash was not the proximate cause of the recession but was actually an aftershock of the real economic earthquake, which was $147 barrel oi

Jeremy: Yes. I spend the whole first chapter on the book on it because I’m at real odds with my colleagues as to what’s going on here. I think what happened is that when oil hit $147 a barrel back in July of 2008, purchasing power plummeted all over the world and the economy totally shut down in July – completely shut down.

And the reason, of course, is that everything’s made out of fossil fuels or run by them – pesticides, construction materials, pharmaceutical products, synthetic fiber, power, transportation – everything.

So what happened is, in late 2007, crude oil started going over $75 a barrel. What we saw is all the prices started going up across the supply chain. And then at $120 a barrel you remember we had food riots in 22 countries because 40 percent of the human race is living on $2.00 a day or less. Wheat, rye, barley and rice were doubling and tripling. And you remember, the UNFAO put out a report saying “We have an alert. We’ve got a billion people who could be in big trouble here.”
(24 October 2011)

The Shocking, Graphic Data That Shows Exactly What Motivates the Occupy Movement
Les Leopold, Alternet
The corporate media may obsess about what Occupy Wall Street is all about, but these images should make it clear.
—
What are the Occupy Wall Street protesters angry about? The same things we’re all angry about. The only difference is the protestors turned their anger into public action. Occupy Wall Street lit the embers and the sparks are flying. Whether it turns into a genuine populist prairie fire depends on all of us.

Now is not the time for wonky policy solutions, as the media meatheads are calling for. Rather, it’s time to air our grievances as loudly as possible, which is precisely what Wall Street and its minions fear the most. Here’s a brief list of why we should be angry and the charts to back it up.

1. The American Dream is imploding…

(click for larger version)

The productivity/wage chart says it all. From 1947 until the mid-1970s real wages and productivity (economic output per worker hour) danced together. Both climbed year after year as did our real standard of living. If you’re old enough, you will remember seeing your parents doing just a bit better each year, year after year. Then, our nation embarked on a grand economic experiment. Taxes were cut especially on the super-rich. Finance was deregulated and unions were crushed. Lo and behold, the two lines broke apart. Productivity continued to climb, but wages stalled and declined. So where did all that productivity money go? To the rich and to the super-rich, especially to those in finance.
(23 October 2011)