post autistic economics review No.44, 9 December 2007

Issue No.44 of the post autistic economics review (available free at http://www.paecon.net) has a lot to offer. With six interesting articles, plus opinion pieces, I’m tempted to call it a ‘Bumper Christmas Edition’ 🙂 Here’s a taste:

In ‘Economics for a warming world’, Frank Ackerman critiques conventional economic theory, and looks at the features of climate change as a public policy problem, in order to argue that ‘new assumptions and analyses are needed in economics in order to comprehend and respond to the problem of climate change’ (Ackerman, p.2). He concludes with recommendations for a revised approach to public policy: ‘First, the development of climate change solutions requires a more optimistic and expansive vision of the role of the public sector.(Ackerman, p.13) This would include the recognition that ‘There is no formula for optimal public decision-making; instead, a deliberative process of discussion is required’ (Ackerman, p.14) Second, it requires ‘a different attitude toward regulatory costs, one that recognizes their potential to serve important public goals rather than simply their potential to drain private pocketbooks’. (Ackerman, p.13) Thirdly, ‘addressing this problem requires a more sensible approach to considering the benefits of government action. The problem is real and imminent; the solutions are, in many cases, straightforward. Despite occasional claims to the contrary, nothing in economics requires us to ignore common sense and fail to protect ourselves and our descendants.’ (Ackerman, p.13)

In the brief article ‘Climate change, global ethics and the market’, Jorge Buzaglo starts with the simple suggestions that: ‘A solution to global warming poses from the start the problem of the extremely biased world income and wealth distribution. A realistic solution should necessarily incorporate global redistributive mechanisms, including market mechanisms.’ (Buzaglo, p.19) He concludes: ‘The global nature of the climate problem imposes global solutions. The equal rights principle is a natural and rational ingredient of a solution which aims to effectively include all countries. There are two main, economically equivalent instruments, which can also be combined in different proportions. One is to create a global market for greenhouse gas emission rights allocated to countries according to their population. The other is to introduce global emission taxes/fees, whose revenues accrue equally to all. To implement these ideas a new, global institution is needed, whose rules and mechanisms are considered effective and credible by both rich and poor countries. A global climate trust fund could be such an institution. The objective for a new, all encompassing Kyoto should be to arrive to these types of institution, rules and mechanisms. Not only the atmosphere, but also the billions of the world’s poor would be grateful for it.’ (Buzaglo, pp.21-22)

In ‘The global economy bubble equilibrium’, Ian Fletcher explains why the ‘old rules’ about the value of the U.S. dollar may have changed. Firstly, U.S. money, he argues, is now ‘WorldMoney’, with the consequence that: ‘the quantity of dollars in circulation is backed not just by the goods production of the US economy, but by the production of all goods bought and sold for dollars anywhere in the world. As a result, the constraint of “too few goods” has been loosened considerably, and the US money supply can expand considerably more than it otherwise could without simply inflating away. (This constraint on dollar inflation in goods prices is buttressed by the constraint on inflation in any currency created by the global surge in cheap manufactured goods from China and elsewhere.)’ (Fletcher, p.24) Secondly, there has been an explosion in the range and quantity of financial instruments – such that ‘the dollar is not just backed by production of goods, but by production of financial instruments and investable assets (like real estate) as well. So the conventional assumption, that exchange rates are ultimately dominated by trade in goods, with financial factors like interest rates exercising a subordinate influence, can now be reversed.’ (Fletcher, p.24) The dollar is backed, in other words, by 300 years of wealth, and a range of speculative bubbles, and thus ‘the tail can wag the dog’.

In ‘High finance – a game of risk: Subprimes, ninja loans, derivatives and other financial fantasies’, FrĂ©dĂ©ric Lordon suggests that while the particular instruments may change, financial market crises follow regular historical patterns – in short, traders get greedy, inadequate risk assessment is undertaken, speculative bubbles arise, the bubbles get so large that popping them will have real-world effects, so despite the known risks the bubbles are encouraged, the bubbles nevertheless eventually pop, and because of the feared real-world effects, governments attempt to bail out imprudent ‘investors’ (I would describe this as the privatisation of profit and the socialisation of risk). Unfortunately he offers little in the way of policy suggestions, except, implicitly, that Central Banks should not follow the Greenspan model of ‘inflating their way out of trouble’.

In ‘Orthodox economic education, ideology, commercial interests: Relationships that inhibit poverty alleviation’, James Angresano argues that one cause of the ‘continuing, intractable poverty condition in most poor countries’ is the combined impact of ‘three unwholesome relationships’, namely: ‘(1) the relationship between the narrow, ideological graduate economic education and the orthodox development perspective held by the international agencies – a perspective that emphasizes growth of output without emphasizing distribution effects; (2) the relationship between international agency policies and the ideological foreign policy interests of the USA and UK, interests that some argue seek to gain control over poor countries’ resources while promoting implementation of a pro-democratic, free market ideology; and (3) the relationship between development policies introduced by the international agencies and the commercial interests of multinational corporations and international banking firms, the interests of which are interlaced with USA and UK foreign policy interests.’ (Angresano, pp.37-38)

In ‘The U. S. employment effects of military and domestic spending priorities’, Robert Pollin and Heidi Garrett-Peltier look at the employment effects of military and non-military spending options for the United States, and conclude that military spending is less effective, dollar for dollar, than a range of non-military options for generating employment. In other words, the U.S. could benefit, fiscally and or in jobs, by a shift in Federal spending away from the military and toward civilian activities.

Citations:

Frank Ackerman, ”Economics for a warming world”, post-autistic economics review, issue no. 44, 9 December 2007, pp. 2-18, http://www.paecon.net/PAEReview/issue44/Ackerman44.pdf

Jorge Buzaglo, “Climate change, global ethics and the market”, post-autistic economics review, issue no. 44, 9 December 2007, pp. 19-22, http://www.paecon.net/PAEReview/issue44/Buzaglo44.pdf

Ian Fletcher, “The global economy bubble equilibrium”, post-autistic economics review, issue no. 44, 9 December 2007, pp. 23-30, http://www.paecon.net/PAEReview/issue44/Fletcher44.pdf

Frédéric Lordon, “High finance — a game of risk: Subprimes, ninja loans, derivatives and other financial fantasies”, post-autistic economics review, issue no. 44, 9 December 2007, pp. 31-36,
http://www.paecon.net/PAEReview/issue44Lordon44.pdf

James Angresano, “Orthodox Economic Education, Ideology and Commercial Interests: Relationships that Inhibit Poverty Alleviation”, post-autistic economics review, issue no. 44, 9 December 2007, pp. 37-58, http://www.paecon.net/PAEReview/issue44/Angresano44.pdf

Robert Pollin and Heidi Garrett-Peltier, “The U.S. Employment Effects of Military and Domestic Spending Priorities”, post-autistic economics review, issue no. 44, 9 December 2007, pp. 59-72, http://www.paecon.net/PAEReview/issue44/Pollin44.pdf

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