This is a post from about 5 weeks ago, before the Occupy Wall Street protest started. It was lost on a server transfer so I’m reloading it now. It makes interesting reading when thinking about the Occupy movement and what its core concerns are. I think the post below encapsulates those concerns, namely: measurement, institutions and values. Our current system externalises as many costs as possible, has institutions cuorrupted by money, and has lost any sense of meaningful values, other than monetary gain. Not only has our economy become monetised, so has our society. In terms of how values have been set aside and how they may be recovered, this piece by Chris Hedges is revealing. On to the original post.

Economics is quite popular these days. It’s not so much the traditional discipline, itself, that is the focus, but a constant flagellation of its representation. Simply put, it’s not delivering the goods. Many trained economists would argue that economics is not the problem but the solution. To paraphrase “it’s the politicians, stupid!”.

The word “economics” also seem to be creeping into the title of every other book, blog or column. “The Economics of…….sex, drugs, football, hairdressing (i made that one up) and so on. The message is clear. People want to know how the world works and seek to understand it through the lens of economics, which is, as I’m repeatedly informed, only about the allocation of resources. We’ve also had Freakonomics followed up by SuperFreakonomics, just in case you didn’t get it the first time.

Diane Coyle is a serial offender is this area with 2 recent books called “Sex, Drugs and Economics” and “The Economics of Enough” (I would recommend both and happy to lend them to anyone local). These books do help us to make more sense of the way our economy works and, therefore, how our society is structured. Economics describes how people transact with each other and for what reasons. Getting into the nitty gritty of personal life seems an odd place for economics to be but research continues to show that how we make decisions is very much dependent on variables which can, to some extent, be measured and quantified. Put bluntly, incentives and pay offs do matter (unless you have no impulse control at all – read male teenagers – but this can be controlled and measured as well).

“The Economics of Enough” is a well written account of  the economic challenges facing us and how we can move forward to create more even prosperity and happiness. Diane outlines what is importance to people: happiness, nature, posterity, fairness and trust. She then looks at where the problems are: our measurement system, our values and our institutions. She then finishes off with a “Manifesto of Enough”, a ten point programme for shifting to a world of “Enough”. It’s all very useful and accurate in its conception. What I like about the book is the realisation that our values have become warped (seen readily in the fiasco of the Global Financial Crisis and its response) and our institutions have become corrupted by those same values. Changing that will require some serious reform and will face major resistance by the vested interests happy with the current situation.

Slipping nicely alongside this book is a new film called “The Economics of Happiness“, which I screened last night in Christchurch to an audience of 115 people, including 2 local MPs. This film, by Helena Norberg-Hodge, Steven Gorelick and John Page, visits themes raised by Diane in her book, but it does so in a more poetic fashion. Drawing on many years research and living in Ladakh, Helena pulls together a picture of a severely fractured global population struggling to maintain its humanity in the face of the onslaught of globalisation. The film dismantles many myths around the benefits of globalisation, describing it is ultimately a process designed for major transnational corporations to increase profits at the expense of people and planet. It’s naturally tends towards the polemical but it’s hard to dispute the evidence. Median incomes do not tell us the whole story. The constant externalisation of environmental and social costs produce a massive hidden subsidy to the global business network. The global institutions (IMF, WTO and World Bank) support and embed this process and remove sovereignty wherever possible so that business faces no impediment. We don’t pay the true costs but some one else picks up the tab.

This links back to Diane’s discussion around measurement. Economics can only be of use if the variables, that are plugged into the models, have integrity. As both Diane and Helena note, the value of integrity is missing. The pressure of profit takes few prisoners and if a cost can be ignored, it will be. Whilst Diane is still in favour of economic growth, she recognises it must come within a properly constructed framework. Helena goes further in promoting a more localized world, where we are in touch with, and close to, our processes and means of production. This approach brings the connection back into our lives and this, ultimately, is the root of the happiness we are looking for.

The clear message from these works (and others like it) is clear. There is a desire for a new approach to our economy and there is evidence to support it. The various manifestos, blueprints and proposals for reform are starting to merge in content and structure. Slowly but surely a solid platform for re-envisaging our society is coming together and a renaissance in economics may not be far away.

Jamie Oliver is a machine….he is one mad food revolutionary. His results from food change programmes in the UK have been tested and shown to raise educational standards….intuitively we know this but it’s very affriming to have some research to back it up.

Now he is taking his personal brand of straight talking to the heart of America’s chronic food related problem, Huntington, West Virginia. This five county metropolitan area was designated as the unhealthiest city in the nation. Nearly half the adults in the area are obese with heart and diabetes problems running alongside.

It’s tough love all the way from the Essex Crusader who keeps giving us the harsh cold truth: crap in, crap out.

Maybe we need him down here in NZ….

Another case of yes, no, maybe, no. The recent G8 summit started with a resounding yes but soon slipped back into a rather tentative not on your nelly.

Simply put the developing or poorer nations have got pressing issues of poverty to deal with and they simply don’t see why they should have to pay for the ecological sins of the developed and richer nations, never mind the fact that they got rich on the back of an imperialist framework!

It just seems that no deal can ever be done without some form of equity payback. There has been some suggestion that revenue raised from either carbon taxes or auctioning of permits could be rebated on a per capita basis. This is simply redistributing the costs in a progressive manner and makes sense on the face of it.

However, can’t see the wealthy punters in the West going for that. What to do?

Maybe it’s time to look for the simplest solution and just get a carbon tax on the books. It’s quick and simple as you only need to tax, at source, basic fossil fuels: oil, gas and coal.

This is something i posted about in 2007 but it’s time to take another look.

Let’s say we have established a price for “carbon”,this being a proxy for externalities caused in the combustion of fossil fuels. The most efficient way to alert the market to this cost is to price it in at source ie where the fossil fuel is sold wholesale. This would be the global oil, gas or coal exchanges.

In my paper, Climate Control, i argued for the establishment of a World Energy Agency, where all fossil fuels were sold through. Simply add on the price of carbon and leave it at that. As a one point global process it would be very simple and then that price information would flow out across the world. End of story.

But there are two issues here:

One is that we are trying to stop carbon quantities breaching certain levels. The price elasticity of fossil fuel consumption may hinder this somewhat as consumers of oil products are slow to change demand in response to price. But there is no doubt that the price rises over the last few years certainly caused some pain in the wallet and made people think about ways of cutting back on petrol usage.

The second issue is interesting. What happens to that money? Who does it belong to? As a charge being levied by the WEA it has no soveriegn recipient. So i propose this “charge” goes into a Global Environmental Contingency Fund (GECF). I want to make clear this is not a tax, it is a cost. It is therefore directly related to an expense which is in this case the use or environmental services.

Let’s stop using the word tax. It’s incorrect and draws attention from the fact that we are simply paying for a service we are using.

So how could the GECF work? I have to give that some more thought but the rough idea is that it would hold those funds in bonds (sovereign) or could lend them out at low interest to fund projects that have a positive environmental benefit. This is the tricky bit. But let’s sit with the first piece. The money comes in and sits in bonds. That’s it. So it’s not being spent on projects of a dubious outcome. As the title implies its a Contingency Fund. We don’t know for sure what will happen in the future. The money can be repaid if required by discounting the price of fossil fuels if it turns out that the cost has turned out to be lower.

What could New Zealand do right now?

Implement a tax and use that revenue to reforest the whole country. This can link into a global emissions trading scheme at some point but the important point is to make sure that the tax collected does not go into the general pot.

People need to see the flow of money from them into pure offsetting activities. If we don’t restrict supply (the only accurate and long lasting solution) then we have to slowly change behaviour and do it in the most straightforward way. A ring fenced and targeted tax is probably the best option we have right now given the likelihood of any global agreement at Copenhagen.

Not wanting to bve left out of the party, China announced a huge stimulus package over the weekend. $600bln or thereabouts is not be to sneezed at. The Chinese are taking no chances with collapsing global trade and economic activity. They have an large domestic economy and plenty of headroom to generate homegrown action.

They also have the money to do it.

As Yves notes the sums involved are getting to the point where a trillion doesn’t raise eyebrows. The Fed’s balance sheet is expanding quicker than a fast food muncher’s waistline. $2trln or will it be 3? Who knows? Who cares anymore? It’s like the end of a Monopoly game where the deals come thick and fast and the rent for landing on Mayfair (or Park Avenue) breaks your bank.

At the same time one continues to hear, in the background, that ecosystem stress is alive and well. As I noted last week there are some major concerns about the level of ecological debt. In a report by the WWF, called The Living Planet, they estimate some $4-5trln worth of ecological damage is occuring on an annual basis.

Deflation, stagflation, hyperinflation, ecological breakdown and over population.

Your cash losing its value every day as the printing presses run wild.

Time for a pause and a lie down.

With the Financial Tsunami bearing down on us it’s easy to turn a blind eye to ecological concerns (or even human right for that matter). But really it’s all the same stuff: a loss of our centre, of who we are.

It’s just reflected in different ways.

Peak Oil is still a major problem and that is bearing down on us more quickly than we would probably care to know.

The monetisation of ecological damage has been estimated at around $3trln, plenty more than current losses in financial markets (though maybe not when the final bill comes in). It would come as no surprise that the two are interconnected. Consumption drives production and production requires ecological resources. When many ecological costs are externalised then we have a problem.

Who pays the bill in the end? Just as we are seeing who pays the bill for excess consumption of financial resources.

The answer: We all pay.

I’ve finally finished Tim Harford’s book “The Undercover Economist”. I highly recommend it to anyone who wants to gain some insight into the economic questions that really effect us.

Forget about the behaviour of small firms or the slope of the IS/LM curve. Think about why people get out of bed in the morning, pay silly prices for a cup of coffee and can’t build a business on Cameroon. Think about how China has grown so fast. How did it happen? Why?

I was lucky enough to attend a lunch last Friday in Wellington (thanks Jim for the head’s up) and hear Tim talk about his new book “The Logic of Life”. I’m looking forward to reading it. It crosses back and forth across the social science spectrum which i believe is incredibly important for an economist to do.

It’s not just about numbers and graphs. As Tim says, it’s about people and the things they do, resources they use and how and why they do it. When I studied economics (University of Manchester 1987!) we lived in a faculty of social science with the option to major in one of 11 different topics as diverse as social anthropology to accounting and finance. These days you’re likely to find economics buried in the commerce faculty.

This approach has failed the student as it presents economics as being about business and numbers. It isn’t at all. Those are merely outcomes and outputs. How people allocate scare resources is a combination of anthropology, psychology, politics, finance, geography , history and so on.

The silo approach that many universities have taken goes counter to the understanding we have developed of systems and the extra efficiencies that coherence or consilience brings.

Economists like Tim Harford will bring new interest to this critical subject and hopefully widen the lens that it is viewed through. After all any economist who can discuss the market for blow jobs with a straight face has to be on to something