Economics and Ecology: The Handwriting on the Wall

Now and then a day comes along when several news stories combine to reveal a clear picture of the human condition, and of America’s future, and for me today (December 2, 2015) is a prime example of such a day:

1. An article by Ravi Somaiya in the business section of the New York Times (Columbia Disputes Exxon Mobil on Climate Risk Articles) reports on the continued wrangling between Mobil/Exxon and Columbia on the issue of whether Mobil/Exxon has presented incorrect propaganda and improper influence in its opposition to the scientific evidence that man-made global warming is a reality.

The unprecedented recent protests around the world (‘No Planet B,’ marchers worldwide tell leaders before U.N. climate summit), and the government response in the Paris negotiations, reminds us that the “denial” card is just about played out, even as these controversies continue to roil. The reactions of Big Oil companies to the findings of climate science over the last few years, however, have made it clear just how myopic the profit motive can be. Even as the evidence mounts, some capitalists would “rather fight than switch,” and would fight to the death (of the economy, and even human civilization and the planet) in kamikaze style just to ensure near term profits. Have Mobil/Exxon and the other big oil and gas companies yet decided to wind down the mining of carbon fuels and get into other lines of production, even as alternative energy sources are becoming increasingly cost-effective? Their plans for fracking and arctic drilling suggest otherwise. I’m still looking for significant evidence of change.         

2. Coral Davenport’s front-page article in the New York Times (The Marshal Islands are disappearing) got me thinking again about the relationships between economics and ecology. The Marshall Islands are gradually slipping into the ocean as sea levels rise, wreaking havoc for residents:

Most of the 1,000 or so Marshall Islands, spread out over 29 narrow coral atolls in the South Pacific, are less than six feet above sea level — and few are more than a mile wide. For the Marshallese, the destructive power of the rising seas is already an inescapable part of daily life. Changing global trade winds have raised sea levels in the South Pacific about a foot over the past 30 years, faster than elsewhere.

This is not a new story, and alarming reports made the news in 2013. Today, however, as the relatively poor residents continue to ineffectually protect their homes from the rising sea, Tony A. deBrum, the Marshall Island’s foreign minister, is trying to influence the terms of the United Nations climate change accord now being negotiated in Paris. His focus is “Squarely on the West’s wallets,” Coral reports,  “recouping ‘loss and damage,’ in negotiators’ parlance, for the destruction wrought by the rich nations’ industrial might on the global environment.” A great many low-lying lands around the world, such as Bengladesh, are no doubt looking for similar compensation from the world’s large industrial nations:

But the Marshall Islands holds an important card: Under a 1986 compact, the roughly 70,000 residents of the Marshalls, because of their long military ties to Washington, are free to emigrate to the United States, a pass that will become more enticing as the water rises on the islands’ shores.

So the United States will face added costs, in addition to all the costs of reducing carbon emissions and handling our own retreating shorelines: We may have to assist other countries that are in the same boat, and we will likely face additional and costly immigration problems.

3. In the current political atmosphere of the United States, these burden will be pushed, as much as possible, on the vanishing middle class. There is no sign, as yet, that the public will demand higher taxation of corporations and top incomes with the vigor it has shown in the United States and elsewhere in climate change protests. There are signs in today’s news stories of the effects of raging income and wealth inequality growth in the United States:

a. Today I found a report published December 1 by the Institute for Policy Studies on the growing concentration of wealth: (Billionaire Bonanza: The Forbes 400 and the Rest of Us). This, too, is not a brand new revelation — wealth has been rapidly concentrating since the beginning of the Reagan revolution in 1980, and Bernie Sanders has been making wealth inequality a major component of his presidential campaign. But it’s getting even more pronounced. Here is the IPS statement of some its major findings:

  • America’s 20 wealthiest people — a group that could fit comfortably in one single Gulfstream G650 luxury jet –­ now own more wealth than the bottom half of the American population combined, a total of 152 million people in 57 million households.
  • The Forbes 400 now own about as much wealth as the nation’s entire African-American population ­– plus more than a third of the Latino population ­– combined.
  • With a combined worth of $2.34 trillion, the Forbes 400 own more wealth than the bottom 61 percent of the country combined, a staggering 194 million people.
  • The median American family has a net worth of $81,000. The Forbes 400 own more wealth than 36 million of these typical American families. That’s as many households in the United States that own cats.

The astounding per capita wealth gap between the top 20 and the bottom half of U.S. households keeps growing, and it has reached a ratio of more than 3 million-to-one.

b. This is way too much money at the top, and collecting there, it has slowed our economy and its growth rate substantially, while want and deprivation increase at the bottom of the income ladder. We have seen hundreds of billions of this excess wealth “invested” in fine art, as record prices are obtained at auction even for some obscure paintings, prints and sculptures. Even with that, it was somewhat surprising to see in this morning’s news an article, by Vindu Goel and Nick Wingfield, reporting that Facebook’s CEO, the youthful Mark Zuckerberg, and his wife have decided to donate most of their wealth to charity (Mark Zuckerberg Vows to Donate 99% of His Facebook Shares for Charity):

The pledge was made in an open letter to their newborn daughter, Max, who was born about a week ago. Mr. Zuckerberg and his wife, Dr. Priscilla Chan, said they were forming a new organization, the Chan Zuckerberg Initiative, to manage the money, through an unusual limited liability corporate structure. “Our initial areas of focus will be personalized learning, curing disease, connecting people and building strong communities,” they wrote.

The handwriting is on the wall: The ultra-rich have far more money than they know what to do with, and the more philanthropic among them are beginning to realize they came by it far too easily and owe a huge debt to society. This is but a modest philanthropic gesture, however, in the context of the entire Forbes 400 wealth. The Waltons and the Kochs, meanwhile, continue their brands of predatory capitalism, with the opposite effect.   

c. Another article in today’s New York Times by Jackie Calmes (Broad Effort Aims to Expand Financial Services to Low-Income Consumers) announced that the Obama administration, “teaming with private partners including the Gates Foundation and JPMorgan Chase, announced initiatives on Tuesday to expand banking services to millions of Americans and others worldwide who lack essentials like checking or savings accounts and access to credit.”

“More than two billion people around the world rely solely on cash transactions, and basic financial services are out of reach for one in four individuals on earth,” the Treasury Secretary, Jacob J. Lew, said at a two-day financial inclusion forum of government, financial industry, academic and nonprofit leaders at the Treasury Department.

“Even in the United States, with greater access to conventional financial services, one in five households continues to use alternatives like check cashers or auto title loans,” Mr. Lew added, and millions do not have enough financial history — despite years of paying rent and bills — to have the credit score needed for access to loans. 

This may sound like a good idea, but it’s actually a step in the wrong direction. It is at bottom a banking initiative, and it will only lead to more inequality. What the world definitely does not need now is more debt. The Crash of 2008 was the result of excessive, subprime mortgage debt, and growing subprime auto debt and student loan bubbles are also beginning to threaten the integrity of the U.S. economy. What is needed by most of the people in the world, and certainly in the United States, is more jobs and income not more credit. The current situation is a classic “Catch 22” and the only way out is to raise taxes on top incomes and corporations.

d. Also in my e-mail today was Harry Dent’s recent publication, sent free to his mailing list on request (How to Survive and Thrive During the Great Gold Bust Ahead). Dent has been predicting another stock market crash, like the one on 2008, and not without reason.  In this article, he warns against buying gold. But there is much sense in his underlying analysis of America’s debt problem:

[B]elieve me I take no pleasure in issuing warnings like this one. It’s no fun standing up and screaming into the stampede that everyone’s going the wrong way. For one, my warnings fall mostly on deaf ears. For example, I called the height of the U.S. real estate bubble peak in late 2005. Those who heard called me every bad name under the sun. As for most others, they just tuned me out. Only the few who had been following my research were able to sidestep the catastrophe.

And my research is telling me that today we’re headed for the largest debt and asset bubble burst in our history. Worse than the Tulip Bubble in the 1630s. Worse than the Great Depression. Worse than anything you’ve seen in your lifetime.

That’s because this bubble is being pumped up by our own government. The bubble tried to burst naturally in 2008, but Hank Paulson, Secretary of the Treasury at the time, begged Congress to step in and stop it from happening. And they did.

Wall Street was bailed out to the tune of almost a trillion dollars with money we didn’t have, but instead we borrowed or printed. Since then the government has printed $4 trillion to keep the banks and financial institutions from collapsing like they did in the 1930s.

Other countries are also printing money like it’s crack cocaine. This has led to the biggest global debt and financial asset bubble in modern history.

I think Dent is right about this highly over-leveraged economy. The following graph he presented of total U.S. debt as a percentage of GDP from 1870 to 2015 caught my attention:

This is a remarkable graph, showing both public debt and private debt (U.S. debt alone is around 100% of GDP). To me, the most noteworthy thing abut the period from 1930 to the present is the huge decline in debt up to the relatively stable period in the 1950s through the 1970s, followed by the steep increase after 1980. Because it follows the trend in top 1% income concentration, this reflects income inequality, and the basic features of the trend are fairly apparent: Private debt has increased during the “Reagan revolution” because, outside of the top 1%, people have had to borrow more money for the basic essentials of American life (including housing, automobiles, and education).

Because of the similarity of the broad parameters of debt and inequality, it is plain that the reduction of the increasing regressivity of taxation that came with the Reagan revolution had much to do with the steepness of these trends: As the tax burden shifted away from the top income earners onto those with lower incomes, the opportunity for lenders to make even more money through credit transactions rapidly increased. More than ever before, the incomes of everyone who must borrow money are eaten up by the burdens of taxation and debt service.

4. Into this overall picture of growing inequality and decline, with the looming threat of deep depression (note there is a decline in total debt since 2008, which parallels the decline in top income) we now must concern ourselves with paying for a huge chunk of the additional extreme costs of saving the planet from ecological collapse, and the likely need to provide financial assistance to the poorer countries in their efforts to combat the effects of global warming This will likely require a high degree of international cooperation, unlike what we are used to in recent years. But there is one more big issue that one of my favorite New York Times reporters, Eduardo Porter, wrote about in this morning’s offering (Imagining a World Without Growth). In the print version, the title was “No growth, no world? Think about it.” Porter raised the question, quite simply, whether the world order could survive without growing:

It’s hard to imagine now, but humanity made do with little or no economic growth for thousands of years. In Byzantium and Egypt, income per capita at the end of the first millennium was lower than at the dawn of the Christian Era. Much of Europe experienced no growth at all in the 500 years that preceded the Industrial Revolution. In India, real incomes per person shrank continuously from the early 17th through the late 19th century.

As world leaders gather in Paris to hash out an agreement to hold down and ultimately stop the emissions of heat-trapping greenhouse gases that threaten to make Earth increasingly inhospitable for humanity, there is a question that is unlikely to be openly discussed at the two-week conclave convened by the United Nations. But it is nonetheless hanging in the air: Could civilization, as we know it, survive such an experience again? The answer, simply, is no. 

Economic growth took off consistently around the world only some 200 years ago. Two things powered it: innovation and lots and lots of carbon-based energy, most of it derived from fossil fuels like coal and petroleum. Staring at climactic upheaval approaching down the decades, environmental advocates, scientists and even some political leaders have put the proposal on the table: World consumption must stop growing.

Mainstream economics has been based all along on a presumption  of continuous unlimited growth; at least, the only constraint in neoclassical theory on growth is demographic. Porter has tapped into the ultimate question: In a world of limited (and in some cases rapidly dwindling) resources could human population and civilization continue to expand at anything like the rates of the last two centuries? Porter writes:

The Stanford ecologist Paul Ehrlich has been arguing for decades that we must slow both population and consumption growth. When I talked to him on the phone a few months ago, he quoted the economist Kenneth Boulding: “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.”

I have seen estimates that total human population is stabilizing and will stop growing sometime this century. Porter investigates whether any more human population growth at all is consistent with saving the planet’s environment:

The proposal that growth must stop appears frequently along the leftward edge of the environmental movement, in publications like Dissent and the writing of the environmental advocate Bill McKibben. It also shows up in academic literature. For instance, Peter Victor of York University in Canada published a study titled “Growth, degrowth and climate change: A scenario analysis,” in which he compared Canadian carbon emissions under three economic paths to the year 2035.

Limiting growth to zero, he found, had a modest impact on carbon spewed into the air. Only the “de-growth” situation — in which Canadians’ income per person shrank to its level in 1976 and the average working hours of employed Canadians declined by 75 percent — managed to slash emissions in a big way.

And it is creeping into international diplomacy, showing up forcefully in India’s demand for “carbon space” from the rich world, which at its logical limit would demand that advanced nations deliver negative emissions — suck more carbon out of the atmosphere than they put in — so the world’s poor countries could burn their way to development as the rich countries have done for the last two centuries.

Yes, there was plenty of food for thought in today’s news. Reduced growth is going to be needed, but reduced growth is being destructively imposed on us by inequality, without constructive planning (especially by Big Oil) for a sustainable future. I continue to have this gut feeling that if there is going to be any chance for our grandchildren and great-grandchildren to live reasonably safe and happy lives beyond the middle of this century, there are going to have to be some major changes in how we think about ourselves and our communities. We need more cooperation and less confrontation. We need to change our perceptions of what a “good life” means on this planet. As demonstrators so aptly put it on their signs, “There is no planet B.”

We certainly need a social agenda for economic activity that does not make profiting from our transactions with one another the ultimate objective. I wonder: Is that what Mark Zuckerberg and his wife are trying to tell us? 

JMH – 12/2/2015

Postscript (added 12/3/2015): Here’s a link to the open letter Zuckerberg and Chan wrote to their newborn daughter (A letter to our daughter). This is the lead idea from their summation:

Our hopes for your generation focus on two ideas: advancing human potential and promoting equality.

Of course, they mean equality of opportunity: Once everyone understands how much economic inequality has harmed most people’s opportunities, and everyone’s future, I expect many others to rally behind Zuckerberg and Chan.

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