Green Growth: thoughts from experts

31/08/2012 § Leave a comment

The NZARES conference is on at the moment. I was there yesterday, enjoying sunny Nelson and the good company of ag and resource economists. The theme this year is ‘Green Growth: Logical Possibility or Oxymoron?’ Most of the papers focused on some aspect of the interaction between agriculture and the environment: measuring impacts, framing or describing impacts (framing farming, if you will), building models, and, of course, valuing impacts.

There is a lot of useful thinking going on in this area. Two of the ideas that struck me:

  • Social licence to farm: this was an idea discussed by a few speakers. Because farmers create impacts beyond the farm gate, they rely on a social licence to operate. In turn, the licence relies on the rest of society having some understanding of farming and trust in farmers to make ‘the right’ decision, however that is defined. When a few farmers produce impacts that are frowned upon (and telegenic), that trust is eroded and the licence is under threat. Farms as SMEs (small and medium enterprises) are possibly more closely scrutinised than other businesses; their licence seems to be more contingent. There’s a research idea right there — any graduate students out there interested?
  • Balancing trade-offs: we are, inevitably, talking about having more of something and less of another. How do we communicate this issue? Economists probably think more about trade-offs than most people, but as a result we think the idea is less remarkable. Even the language can be a problem. ‘Trading off’ highlights the underlying equivalence or commensurability, even for things considered inviolate. ‘Balancing’ is a nicer term, but in practice still means figuring out how much X we’ll give up for more Y. This discussion also moves us from averages to marginals, again where economists feel comfortable but other people might not.

I suggest having a look at the programme and reading some of the papers once they are posted on AgEcon Search. Alternatively, the authors will no doubt provide a copy if you contact them.

The Randian free lunch

29/08/2012 § 3 Comments

With the selection of Paul Ryan, the writings and philosophy of Ayn Rand are getting exposure like they haven’t had in years. At least not since her most famous disciple, Alan Greenspan, declared he might have been mistaken. That’s caused me to think more about her than I have for decades.

Like many people, I read Rand as a teenager. My sister lent me Atlas Shrugged with some excitement. As it turned out, I was inoculated from Rand’s charms in a peculiar way. I had already read Voltaire and Swift, Camus and Sartre. Compared to them, Rand was clumsy. I can understand the appeal of political novels. You can invent a world that is just so. Your characters are reasonably and naturally pushed into situations that justify your philosophy. But they must, to my mind, at least be passably novelistic. Rand failed on that criterion. And if she couldn’t explain her philosophy with a certain versimilitude, then it couldn’t be useful in the world.

Now, I’m finding lots of commentary on her — what she said, how she lived, whom she influenced. Her work is based on a central notion of man versus society (one of the three main literary conflicts according to my 10th grade English class). The individual must stand strong against the pressures of society, live by his rules, etc.

This leads to my economic criticism. One of the key useful ideas from economics is that there is no free lunch. If there’s a benefit, if there’s an impact, if there’s a capacity, then it came from something. And that something needs to be paid for.

Rand’s individual standing alone clearly has the capacity to fend for himself and the ability to communicate. He did not invent these skills; he did not birth himself fully capable. Those capabilities are the product of that individual and the others around him — family, community, society. They are also the result of a history, both technological and cultural.

Language is, to me, the best and most basic example of the impossibility of Rand’s vision. An individual does not have a language. Language is a cooperative creation, one with a history and community of participants. If an individual wants to communicate thoughts — about parasites on the social order or the importance of the gold standard or other Randian notion — he has to have a language. That language pre-dated him and exists without him. He depends on it, and cannot create it himself.

Rand wants her heroes to be not just self-sufficient but self-produced. Rand’s ability to criticise society depends, ironically, on society’s creations. People have had to use and develop language, and then teach it to her hero. Cultures have maintained expressions and cadences, which the hero exploits. Authors have created new word combinations, which the hero expropriates.

Rand wants, amongst other things, communication without society. She wants to use the communication without paying for it. She wants, at root, a free lunch.

Climate change and the individual

28/08/2012 § 6 Comments

Due to the initiative and effort of Eric Crampton, there is now an economics blog on Sciblogs. It’s called The Dismal Science and will pull posts from several excellent New Zealand economics blogs. Thanks, Eric, and yay us.

Front and centre is methodological individualism. This doctrine/position/approach wasn’t particularly emphasised in my early tertiary education, but I hear more and more reference to it.

It has interesting and Darwinian implications for climate change. For example, the Kapiti Coast has just informed residents of low-lying areas that their properties will be under water if the sea level rises.

I’ve seen similar maps for several areas in the lower North Island — Kapiti, Wellington, the Hutt Valley. They are informative, but they are also just a question of physics and maths. If your house is 1 metre above sea level and the sea rises 2 metres, given that 1 < 2, it should be pretty easy to work out the consequences. It gets complicated, of course, with more precise measurements and predictions, and accounting, too, for storm surges and so on. But the essence is that water seeks its own level and some numbers are smaller than bigger numbers.

For that reason, the reaction of one affected resident was curious:

The sea-risk report is ‘just another thing to bamboozle residents’, say Elizabeth and Terence O’Brien, from Raumati.

These individuals have decided that the report isn’t about preparing and planning and informing, it is about ‘bamboozling’. The nice thing about methodological individualism is that we can work with that. There is no need to argue, cajole, or convince. I can look at low-lying beachfront property and wonder how long it will last; they can see it as a great investment opportunity. We can both be pleased in the present with our accurate foresight. Then, in the future, we will individually bear the consequences of our beliefs and choices.

Obviously, the whole topic of climate change is more complex. But, in the end, individuals need to make decisions about their own circumstances, using the information and theories they think are most germane. And that’s pretty interesting to study.

Capitalist conspiracies?

27/08/2012 § 3 Comments

An article over the weekend reported the following:

      If you think smoking doesn’t cause lung cancer, HIV doesn’t cause Aids or Nasa faked the Moon landing, you are also more likely to support free market economics and be sceptical about climate change.

The fabulous Stats Chat picked up on the article and discussed the implications from the POV of probability theory. Thomas Lumley beat me to the punch:

I think free market economics correlates with the conspiracy theories in this survey for three main reasons.  The first is that most of the conspiracy theories on the list are conspiracies by or with governments, so believers should support anything that reduces the power of governments.  The second is that, economists, like statisticians, are professionally required to think up holes in arguments, and so suffer from reflexive contrarianism as an occupational hazard. And finally, when it comes to giving excuses for not wanting to do anything about climate change, what “free-market economics” and “IPCC plot” have in common is that they sound better than “I don’t care what happens to the world over the next century”.

A conspiracy theory is all about (a) power and (b) ‘truth’. The theory explains that someone with power wants to control the situation. They want to keep us from knowing what’s really going on, or destroy a challenger, or consolidate their power. That is, there is a motivation for the conspiracy; otherwise, why bother going to the trouble? Whether you are talking about ‘Paul is dead’, the international banking cabal, the assassinations of Marilyn Monroe and Vince Foster, Area 51, or WTC7, the key motivation is power.

Against this power, the conspiracy theory wields the truth. The believer sees specific patterns and congruences that are arcane but visible to those who ‘know’. This truth does two things. It holds out the possibility of an alternative world: if only the truth were widely acknowledged, then existing power relationships would be reversed. It is, if you wish, the dream of Carnival. Secondly, it provides an explanation for why the world isn’t as it should naturally be. The conspiracy is preventing the world from achieving its rightful equilibrium. If only people had understood the real meaning in Abbey Road, we would not have had Wings.

I agree with Lumley that if a person tends to believe conspiracy theories, they would tend to believe economic theories that suggest powerful people are preventing the market from operating properly. Since they already think that the world is not as it should be, then those beliefs would spill over into the economic sphere.

But two further things come to mind. First, what are their other economic beliefs? In the US, at least, they have quite a list of potential beliefs/theories from which to choose. How common are these? There’s some distance between thinking that the government has put too many regulations on businesses and consumers because politics gets in the way of sane economic policy, and thinking that Bernanke is the Rothschilds’ lapdog.

The second thing is more of a worry. How do other people, those who don’t believe the conspiracy theories, see free-market economic? The mixed economy model — some public, some private — has been extraordinarily successful, compared to the alternatives. That’s not to say it doesn’t have its problems. But in terms of widespread prosperity, heath, and welfare, it sure beats feudalism, various forms of totalitarianism, hunting and gathering — pretty much everything else. A key element of the mixed economy is voluntary transactions based on market prices, or, y’know, free market economics. What do most people think about price-setting and willingness to pay? And how does that spill into thoughts about labour markets, asset sales, and property prices?

Do they believe that supply and demand forces affect prices and quantities (subject, of course, to all the usual caveats)? Do they think that people respond sensibly to incentives? What do they think about allocation of scarce resources?

Maybe we shouldn’t be so worried about the economic opinions of a few conspiracy theorists; maybe it’s the economics of the majority that we should be studying.

Male success strategies

24/08/2012 § Leave a comment

With an increasing part of my work involving simulation modelling (I have a paper with Chris Schilling at the upcoming NZARES Conference), I’ve been paying more attention to the complexity/evolution literature. Origin of Wealth (Beinhocker, 2007) was a good introduction, but I’ve also just been browsing the lit and the web to pick up bits and pieces.

Then, the National Review publishes this mash letter. The American Prospect takes it down from a political perspective, but I can’t help thinking of it in evolutionary terms. Well, they started it, with their ‘conventional biological wisdom’. I don’t care about the candidates; I’m more interested in why this journo would write such a piece. I mean, admiring that someone is an alpha-male-ne-plus-ultra is, to me, the equivalent of admitting defeat. You’re admitting, ‘hey, he’s bigger and stronger than I am, and he’s going to get all the food and mates and I’m cool with that.’

That got me thinking about this journo’s own evolutionary strategy — what’s his angle? Searching around, I stumbled across this fabulous summary of male strategies from the lab of Dr Barry Sinervo at UC Santa Cruz. I ended up on the Wikipedia page for the common side-blotched lizard, which has a rock-paper-scissors arrangement. It has three kinds of males; each one has a strategy that dominates one other and is dominated by the third. The three types can be distinguished by their throat colours, leading Wikipedia to explain the strategies:

[They] can be summarized as “orange beats blue, blue beats yellow, and yellow beats orange”.

According to Dr Sinervo and Wikipedia, the proportions of lizard types are relatively steady over time, suggesting that each strategy is effective.

This takes me back to Kevin Williamson at the National Review. Maybe he’s got a strategy for survival, after all. He’s pumping up the big, testerone-laden orange-throated lizard, talking smack about the blue lizard. All the while, he’s got his own strategy: sneak in while no one’s paying attention.

You’ve got to watch out for those yellow lizards.

Shuffling sideways

24/08/2012 § Leave a comment

I’ve been working through the economic news from around the world this morning. Bloomberg says that Europe is still contracting, although perhaps a bit less than before. Indicators for both services and manufacturing are in the negative zone, just moving around a bit. The same article tells us that China is slowing down and the United States is moving sideways. The Washington Post reports much the same information, adding that the eurozone numbers mean Europe is ‘firmly in recession’, and that China’s economic policy will be on autopilot until the Party Congress in October. I’d add that US policy is also likely to be on autopilot until November: Congress will try to stymie the President and the Federal Reserve will want to avoid appearing political.

The policy news out of the eurozone was better, as TVHE explained a couple of days ago, and then the news this morning is contradictory and strange. Matt Nolan focuses on the ‘we won’t tell anyone’ aspect of the story. I keyed into comments in this Reuters article, in which a European bank economist explained the folly. I guess I assumed that, if someone can clearly explain the problem in a news article, the ECB can understand that it might not be good policy.

With all this, I was trying to think of what the country-by-country analysis meant for the world economy. I went back to the World Bank statistics just to refresh my memory of the relative sizes of these countries’ economies. As a service to readers, I’ve put them in pie charts:

These are just reminders that the big countries are big — a few countries comprise most of the world’s GDP. They all seem to be shuffling sideways at the moment. Given that the US and China are at points in their political cycles when economic policy is flat, that shuffling looks set to continue through the end of the year. The contradictory yet strangely hopeful signals out of Europe suggest a muddling through there. The Eurozone chart also suggests that Greece isn’t as important as it is made out to be, but Italy and Spain could be worries.

For New Zealand, well, the latest NZIER column (pdf) probably has it about right (and not just because they sign my paychecks): ‘stagnant’, ‘sideways’, ‘anaemic’, ‘flat’, ‘weak’, etc.

Happy, happy, joy, joy.

Headline of the day

23/08/2012 § Leave a comment

Best headline of the day, the week, and possibly the month:

Coke to crack into Aussie beer market

Or maybe I’m just an easily amused product of the 1980s.

Where Am I?

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