Tuesday, October 30, 2012

Freak Storms and Fossil Fuels

Freak Storms and Fossil Fuels
October 30, 2012
By Tom Moore
The Cornell Daily Sun

At the time of writing, Hurricane Sandy has already claimed 67 lives on its way through the Caribbean. Sandy is scheduled to make landfall sometime on Monday night, bringing hurricane-force winds to a huge swath of the East Coast. Writing an opinion column on the heels, or, in this case, in the midst of such a traumatic event is always a troubling experience for me. Hurricane-force winds extend 175 miles in each direction from Hurricane Sandy’s eye. It is very, very big, and I am very, very small.

Any observation I make on Hurricane Sandy is necessarily made from a place of privilege, in that I am not facing the brunt of the storm myself, and, even if I were, I have the resources at my disposal to take safety precautions that were most likely not available to the 51 Haitians already killed by this storm. My position as an essentially safe observer gives me serious pause before writing on this disaster, a disaster which is, for so many, deeply personal.

However, even as every major news outlet tells me that this “Frankenstorm” is a freak of nature, voices from the margins suggest that Hurricane Sandy is a symptomatic, rather than an aberrant, storm. As Bill McKibben writes for The Daily Beast, “[Hurricanes are] born, as they always have been, when a tropical wave launches off the African coast and heads out into the open ocean. But when that ocean is hot — and at the moment sea surface temperatures off the Northeast are five degrees higher than normal — a storm like Sandy can lurch north longer and stronger, drawing huge quantities of moisture into its clouds, and then dumping them ashore.”

The strange warmth of the North Atlantic has something to do with so-called acts of nature, but it also has a great deal to do with acts of humanity. It has to do with the single-minded profit-seeking of the fossil-fuel industry. It has to do with ever-increasing greenhouse gas emissions, primarily by the nations best equipped to deal with the consequences we’re feeling right now, and not by island nations like Haiti with the most to lose. It has to do with the inaction of politicians like Obama and Romney, from whose campaigns any mention of climate change has been conspicuously absent. The only discussion of energy policy has consisted of the two of them competing as to who has been the most friendly to the exploration of new oil and gas reserves.

As Dan Lashof wrote for EcoWatch, “Just like the unprecedented droughts, flooding and heat we all experienced this year, storms like Hurricane Sandy is what global warming looks like. This is the new normal.”

It is not insignificant, though, to see this analysis made in a news source explicitly tailored toward an environmentalist audience, and not in the New York Times or on CNN. Faced with the trauma of the storm of the century, most mainstream reporters and commentators keep the blame firmly on the shoulders of Mother Nature. Making arguments about our own indirect complicity in traumatic events is indeed uncomfortable work, in part because such arguments can be painfully misconstrued as a sort of victim-blaming. And admittedly, attribution in cases like these is always a bit of a sketchy science. We may never be able to look at a weather event like Hurricane Sandy and say, unequivocally, This is a result of global warming, and without anthropogenic climate change, this weather event would not have happened. If we ever do get to that point, it will be far too late to do anything about it.

Those reservations aside, I take this sort of analysis to be precisely my role as an opinion columnist: to address and attempt to make sense of the traumatic and the uncomfortable as it relates to the reader, and thus to empower the reader to effect change. I take structural analysis of disaster to be empowering, rather than victim-blaming, work. I also take the moment of the disaster to be precisely the moment for such analytical work, however painful it may be.

If Hurricane Sandy were an isolated incident, it would be nothing but an occasion to buckle down and mourn. But it isn’t. Hurricane Sandy is what climate change looks like. As such, it is an occasion not only for keeping each other safe and for mourning the dead, but also for attacking, with renewed vigor, the structural problems that have already raised global temperatures one degree Celsius, a shift which NASA climatologist James Hansen claims has dramatically increased the chances of extreme weather events.

Our new relationship with the Earth is such that each new disaster is a new call to action. Hurricane Sandy has everything to do with the Earth First! activists whose tree village blockade in Texas has been standing in the way of the Keystone XL pipeline for over a month now. Closer to home, KyotoNOW! has recently launched a campaign to urge Cornell to divest from fossil fuels by 2020. And if electoral politics are your thing, I take both Romney and Obama to be profoundly unconscionable choices for anyone interested in leaving an inhabitable planet for the next generation. Personally, I’ll be voting for Green Party candidate Jill Stein.

There was a time when extreme weather events were the ultimate examples of disasters completely beyond human control. For better or for worse, that time has passed. If Hurricane Sandy freaks you out, you need to start fighting like hell against the very human forces that promise only worse to come. 
Tom Moore is a junior in the College of Arts and Sciences. He may be reached at ­tmoore@cornellsun.com. What Even Is All This? appears alternate Tuesdays this semester.

Wednesday, October 10, 2012

Endogenous Growth Theory and Ecological Unequal Exchange: linkage, displacement and deflection of 'diminishing returns'

What the late Stephen G. Bunker wrote bears repeating:
The crucial difference between production and extraction is that the dynamics of scale in extractive economies function inversely to the dynamics of scale in the productive economies to which world trade connects them.
Rather than repeat what Bunker wrote, though, I'm going to cite, later, a longer piece by Nicholas Kaldor from his 1985 Hicks Lecture that makes a somewhat similar point. But first, I want to present some background on an old debate and a 'new' theory.

In December 1926, The Economic Journal published an article by Piero Sraffa dealing with "that difficult branch of economic theory" -- the theory of increasing returns. Over the next five years it published responses from Cecil Pigou, G. F. Shove, Lionel Robbins and Allyn Young and, in March 1930, a symposium on the topic by D. H. Robertson, Sraffa and Shrove.

Almost exactly 60 years later, in October 1986, The Journal of Political Economy, published Paul D. Romer's "Increasing Returns and Long-Run Growth," an important contribution to so-called New Growth Theory. Romer took his cue explicitly from Young's 1928 paper, "Increasing Returns and Economic Progress" and although he mentioned the precedents of Adam Smith's pin factory and Alfred Marshall's distinction between internal and external economies, he skipped over the rest of the debate in which Young's contribution had appeared.

Critics have argued that Romer's usage of increasing returns and external economies is not faithful to Young's formulation, in that it "overlooked Young's emphasis on the reciprocal relations between the division of labor and the feed-back into aggregate demand as a requirement for growth," "neglected Young's categorical rejection of the usefulness of Walrasian general equilibrium models" and wrested "Marshall's microeconomic concepts of internal and external economies out of his theory of value and price to serve as a basis for amending constant return production functions to exhibit increasing returns for the macroeconomy" (Rima 2004, 181-182).

My concern here is with a more conspicuous omission in Romer's analysis -- the distinction between increasing returns as characteristic of manufacturing and diminishing returns as dominant in agriculture and extractive industries (Young 1928, 528-529). The words "agriculture," "land" and "rent" do not appear in Romer's 1986 article. When Romer mentions diminishing returns, it is only in the context of research activity or the limiting assumptions of classical conventional growth models. But diminishing returns is a specific limitation, not a generality that can be indiscriminately "offset" by increasing returns. In a lecture given at Harvard in 1974, "What is Wrong with Economic Theory," Kaldor explained that "it is the income of the agricultural sector, (given the "terms of trade") that really determines the level and the rate of growth of industrial production, according to the formula:"
Or, in prose, economic growth depends on either a relative reduction in the income of agriculture or increased demand from agriculture for industrial products. And, of course, increased demand from agriculture implies increased agricultural production, which at some point confronts the problem of diminishing returns. In his 1985 Hicks Lecture, Kaldor explained the inverse dynamics of scale between industrial and agricultural areas, parenthetically, in terms of the "differing manner of operation of perfect and imperfect competition":
The basic requirement of continued economic growth is that the various complementary sectors expand in due relationship with each other -- that is to say that general expansion is not held up by "bottlenecks" in key sectors. However, in the course of time, under the influence of technical progress, both of the natural-resource saving and labour-saving kind, the requirements of expansion may become considerably modified. In the manufacturing sector which becomes more important as real incomes rise, there are considerable economies of scale, as a result of which manufacturing activities are subject to a "polarization process" -- they are likely to develop in a few successful centres, and their success has an inhibiting effect on similar developments in other areas. The realisation of these economies of scale normally requires also that numerous processes of production which are related to each other are carried out in close geographical proximity.

As a result different regions experience unequal rates of growth of output and of population. The industrial areas experience a growing demand for labour which may involve immigration from other areas once their own surplus labour is exhausted. Technological development in primary production on the other hand, tends to be more labour-saving than land-saving, so that the growth of output may go hand in hand with a falling demand for labour; and though output per head may grow fast in real terms, the level of wages will tend to remain low (and may even be falling) as a result of a growing surplus population. Since labour cost per unit of output is the most important factor in determining selling prices (at any rate under competitive conditions) the low wages prevailing, in terms of industrial products, will mean that the terms of trade will move unfavourably to primary producers, which may be the main factor, along with the low coefficient of labour utilisation, for their state of "under-development" characterised by low standards of living. The important contrast -- which I regard as a major factor in the growing inequality of incomes between rich and poor countries -- resides in the fact that the benefit of labour saving technical progress in the primary sector tends to get passed on to the consumers in the secondary sector in lower prices, whereas in the industrial sector its benefits are retained within the sector through higher wages and profits. (The main reason for this difference lies in the differing manner of operation of perfect and imperfect competition.)
Kaldor's parenthetical explanation suggests more than it reveals. Sraffa's 1926 discussion is the key to unpacking why Kaldor specifies perfect competition as characteristic of primary production and associates imperfect competition with manufacturing industry. The key determinants, in that view, are the shapes of the firms' supply curves (increasing or diminishing returns) and the nature of external economies.

Externality and Ecological Overshoot

Marshall's notion of "external economies" has gone through a series of modifications to become today's "externalities." Pigou extended the concept beyond Marshall's industrial agglomerations and distinguished between “incidental uncharged disservices” and "incidental uncompensated services." The former became known as negative externalities and the latter as positive externalities, although typically it is the negative environmental externalities that are referred to simply as externalities. There is a seeming but misleading symmetry to the two terms and a similarly illusory quality of reciprocity within each of them. When a disservice is uncharged or a service is uncompensated there is a presumption that there might otherwise have been a "whom" to charge or to compensate and that the missing invoice could have been denominated in currency. In other words, the charging and compensating would appear to be a financial transaction between two parties, both of whom must be assumed to be legal persons. In reality, the services or disservices performed may (or may not!) be extremely indirect and the parties affected incredibly diffuse, both in space and time. Mundane examples of factory soot and laundry hanging out to dry may be more mystification than illumination.

In the case of the external economies of increasing returns and diminishing returns, respectively, although they function inversely to one another it is a double inversion that ultimately produces parallel incentives to firms in manufacturing and agricultural or extractive industries. In other words, while firms in the manufacturing center are routinely considered to be the beneficiaries of external economies that generate increasing returns in the sense that they receive uncompensated services, firms in the extractive periphery may also benefit from the externalization of diminishing returns in that they are able to avoid being charged for the environmental disservices they inflict. In effect, the cost of diminishing returns is first displaced to poor regions where it is then deflected onto society and the environment. Unequal exchange thus takes place, that is to say, in the global external economies, "behind the back", so to speak, of formal monetary transactions.

Tuesday, October 2, 2012

Ned Ludd: Emperor Rogoff is Still Naked

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University, chief economist of the International Monetary Fund and recipient of the 2011 Deutsche Bank Prize in Financial Economics begins his King Ludd is Still Dead essay thus:
Since the dawn of the industrial age, a recurrent fear has been that technological change will spawn mass unemployment. Neoclassical economists predicted that this would not happen, because people would find other jobs, albeit possibly after a long period of painful adjustment. By and large, that prediction has proven to be correct [bracketing out a few "exogenous" wars, revolutions and depressions].
Professor Rogoff crowns his tapestry of platitudes and banalities with the following carbuncle: "Of course, some increase in unemployment as a result of more rapid technological change is certainly likely, especially in places like Europe, where a plethora of rigidities inhibit smooth adjustment."

The old "it's the rigidities, stupid," scam! Except there's no empirical support for that perpetual claim. No credible empirical support, that is.

As Richard Freeman explained back in 2006 ("Labour market institutions without blinders: The debate over flexibility and labour market performance"), "In short, priors aside, the best summary of the data, what we really know, is that labour institutions reduce earnings inequality but that they have no clear relation to other aggregate outcomes, such as unemployment."

"Why are supporters of the new orthodoxy so convinced that their analysis definitively convicts labour institutions while critics find inconclusive results in the same data?"

"Adherents to the new orthodox view search the data for specifications/measures that support their priors, while barely noticing evidence that goes against them. If results are inconsistent with the priors, they assume that something is wrong with their empirical specification or measures, rather than question the validity of their case. If results fit their priors, they rarely look further to find weaknesses."

For further criticism of the rigidity hypothesis see Howell, Baker, Glyn and Schmitt, "Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence."

See also Karl Marx on "the theory of compensation as regards the workpeople displaced by machinery," John Maynard Keynes on "Is the Economic System Self-Adjusting?"" and Hans Neisser on "Permanent Technological Unemployment"