A new book called Poor Economics - dealing with economic choices by the poor - has been published by an academic who works in the USA and has his ancestry in a new-emergent economy. The text unconsciously encapsulates a clear vindication of my concept of ik: the idea that people allocate any discretionary expenditure that they can afford on buying quons - copyrighted and trade-mark-protected entertainment, branded goods and services and other consumer experiences on which a charge could be levied for enjoying access to the input of intellectual property that makes the 'good' desirable to those who buy or hire it. Give a desperately poor person [who has just enough consumption to survive] a few extra pennies and she or he is more likely to to try to broaden their range of consumer experiences by accessing some ik than they are to buy more of the food that makes up their daily diet.
This behaviour is not what typical Grauniad readers expect, and it is 'irrational' in terms of formal Economics; but it is what the evidence clearly shows. It is also the basis on which governments [from the earliest human societies] have taxed transactions in markets. While income taxes are fashionably considered 'fair' in the degenerate cisatlantic democracies, History shows that expenditure taxes come closest to being 'discretionary' in that people opt to buy things even though they know that in doing so they are paying a tax [indeed, the majority of the price of cigarettes, alcoholic drinks and motor fuel is tax in many countries]. People are more likely to opt not to earn more taxable income than they are to refuse to purchase highly desired items because of the tax imposed on the transaction.
This experience shows clearly the irrationality of formal Economics, as it has been developed since the eighteen-sixties. Economics as presented in universities and in advice to governments is not based on evidence - it is based on assumptions as to what an ideal or 'perfect' economy might look like. The aim of Economists is to make human life conform to their models: which is a fundamentally inhumane objective. There is no reason for surprise that Economics solutions to real-world issues do not 'work'. The alternative has existed for longer than Economics has been in existence: the science of Political Economy was well-developed, and realistic, well before the pioneers of modern Economics decided to create their own academic dreamland. Lord Keynes - who never bothered with a doctorate in Economics and never held a professorial chair - was deeply learned in Political Economy, and although he was loyal to the memory of his teachers [his father, John Neville Keynes and the family friend Alfred Marshall] his work was anything but mainstream Economics: which is why Economists have so imperfectly understood it, and why so many of them have tried to push it out of consideration
My simple objective is the restore Political Economy as a science that is relevant to the human condition, and perhaps to .take some aspects of the science a small step forwards. Anyone interested in this question should open the link from this blog to my text PPE: Personal Political Economy.
Showing posts with label classical Political Economy. Show all posts
Showing posts with label classical Political Economy. Show all posts
Wednesday, 28 March 2012
Sunday, 11 December 2011
Global Accord on the Climate
After extended talks, all the 'major polluters' have agreed that there will be a 'legally-binding accord' on the control of greenhouse gasses and deforestation by 2020. We have heard most of this before, most notably from the Kyoto Convention; though the two biggest economies and greatest emitters of greenhouse gasses - the USA and China - stood aloof.
The agreement may be 'binding' with 'legal force': but there is no power to enforce it. The greatest agitators for the protection of the planet are the most perverse, in that they oppose the utilisation of atomic energy in the face of massive evidence that nuclear power generation alone could pretty well guarantee a sufficient supply of power to maintain anything like the present structures for production, transportation and consumption. The entire pattern of information technology depends abjectly on the availability of electricity. Urban living relies on the availability of electricity for lighting, cooking and home entertainment. Trade depends on oil and electricity. The growth of China has been facilitated only by a massive construction of basic power sources using coal, hydro-electric power and nuclear fission.
Heavily subsidised windmills can notionally reduce carbon emissions, but that argument lost some of its tiny residue of credibility in Britain when a perfectly predictable gale caused spontaneous combustion in a wind turbine in Ayrshire a few days ago. A few days earlier a wholly sensible decision by the British government to reduce the extremely large taxpayer subsidy to solar panel installers has caused screams of protest from 'the industry', which would be a much louder shout if similar strictures were applied to the windmill business. Yet even the most ardent exploiters of the taxpayer and power-buyer in the windmill lobby acknowledge that their system depends on there being in existence a parallel capability to generate power from other sources, because windmills don't work when there is no wind - which tends to happen in the periods of coldest weather with steady high pressure and thus no wind. Wind generation of power can only be used in parallel with equivalent reserve capacity in the nuclear or fossil-fuel sectors.
Ordinary folk have to pay for power and power stations, through electricity bills that they must meet from their wages and through the fact that their employers have to pay higher taxes and energy charges and thus have less to allocate to the wages or welfare that they can offer to their employees. People who live on pensions and benefits have less available to spend on everything else as they must pay more for power, both directly in what they consume in the home and as a component of making and moving everything else that they buy.
The capital cost and ongoing subsidy of 'green energy' is a terrifying future demand on the economy. It is extremely doubtful that the gap between the available sources of power and the ideal that is demanded by green campaigners can be afforded, in full, even by the most affluent economies. Not only have the so-say mature postindustrial economies lived beyond their means for decades: they have also allocated far too much to consumption and too little to investment. In terms of classical Political Economy societies have broken the Iron Law of Wages [the fact that an economy simply cannot consume more than it produces without eventually having to face the need dramatically to rectify the resulting imbalance]; and that fact has become partially recognised. But they have forgotten to combine this recognition with the equal force of the Law of Diminishing Returns: no economy can expect indefinitely to receive constant or increasing returns on investment in any given technology. The more that is spent on windpower, traditional nuclear fission, gas-fired 'clean' power stations or any other technology [whether yet discovered or still awaiting revelation] at some point in the intensification of investment the output per unit of investment perceptibly declines: and if the investment continues thereafter, the decline in productivity will eventually become catastrophic.
The optimisation of investment in power generation in accordance with the basic Laws of Political Economy requires a specificity of planning that is not yet in any government's agenda, though its importance is undeniable. Behind this point lies another, even bigger issue: the competition of investment with consumption. It is already accepted by theoreticians and by many commonsense citizens that living standards cannot rise, and may have to fall, just to rectify the past breach of the Iran Law. If the general level of consumption is to be reduced in order to fund the most expensive forms of investment in green energy, that will cause strains in civil society. If the pressure is increased to give subsidies to less-developed countries to enable them to conform with a new standard for green energy and to cease deforestation, there will have to be an even greater raid on the living standards of everybody in the relatively-declining economies in the formerly-affluent world. There is one partial experiment going on, in reducing living standards dramatically to meet basic economic principles: in Greece. The political implications of the debt-correction mechanism are highly problematic; and interestingly the Greek government has attempted to enforce property tax by billing citizens for that tax with their electricity bills. They risk loosing their energy if they decline to pay the additional tax. The world is faced with the prospect of reversing that situation: they are being asked to pay an energy tax both through the tax system and in meeting energy bills at the petrol station and through their meters at home.
If the new Accord on green energy and deforestation holds up, there are huge tax and price implications for everybody, in hard times. A new political prospect opens up: the world becomes ever less predictable. Which situation is complicated - and potentially could temporarily be resolved - by the discovery that massive quantities of natural gas are to be found in deep deposits of shale that are predicted to exist in the geology of many areas in the world. Exploratory workings in shale deposits in my native Lancashire earlier this year caused two minor earth tremors; and in the USA there have been reports of household water taps producing flammable gas and of serious disruption of aquifers that provide mass water supplies. If the process of 'fracking' the shale to release the gas is found to be safe for use in the British Isles, China and other territories where the shale has been found in abundance, investment in nuclear power and in windmills can be set aside for at least half a century. Extracting the gas from the shale is far from cheap, compared to allowing oil that is under pressure in near-surface rocks in Russia or Saudi Arabia to be released into the pipelines for conveyance to the refinery; but the shale gas is likely to be cheaper than most other 'green' energy sources. It can give space and time for the beneficiary economies to make appropriate long-term investments in energy supply for the longer-term future; but I fear that it is more likely that their governments will conspire with their people to continue in the defiance of the Laws of Political Economy.
The discovery of exploitable shale-oil and gas will provide an excuse for the governors of some economies to avoid setting out a comprehensive energy strategy that will be affordable to people of modest means a century hence. That deferment can be helpful for politicians in terms of short-run electoral game-playing, but it will do little for the survival of the species. The story of shale-oil and gas reminds one that there are always options that do not feature in the most simply stated scary accounts of the prospects that face the economy; but it does not supplant the issues that have led to the new decision of all the world's economies that there should be an energy strategy by 2020. .
The agreement may be 'binding' with 'legal force': but there is no power to enforce it. The greatest agitators for the protection of the planet are the most perverse, in that they oppose the utilisation of atomic energy in the face of massive evidence that nuclear power generation alone could pretty well guarantee a sufficient supply of power to maintain anything like the present structures for production, transportation and consumption. The entire pattern of information technology depends abjectly on the availability of electricity. Urban living relies on the availability of electricity for lighting, cooking and home entertainment. Trade depends on oil and electricity. The growth of China has been facilitated only by a massive construction of basic power sources using coal, hydro-electric power and nuclear fission.
Heavily subsidised windmills can notionally reduce carbon emissions, but that argument lost some of its tiny residue of credibility in Britain when a perfectly predictable gale caused spontaneous combustion in a wind turbine in Ayrshire a few days ago. A few days earlier a wholly sensible decision by the British government to reduce the extremely large taxpayer subsidy to solar panel installers has caused screams of protest from 'the industry', which would be a much louder shout if similar strictures were applied to the windmill business. Yet even the most ardent exploiters of the taxpayer and power-buyer in the windmill lobby acknowledge that their system depends on there being in existence a parallel capability to generate power from other sources, because windmills don't work when there is no wind - which tends to happen in the periods of coldest weather with steady high pressure and thus no wind. Wind generation of power can only be used in parallel with equivalent reserve capacity in the nuclear or fossil-fuel sectors.
Ordinary folk have to pay for power and power stations, through electricity bills that they must meet from their wages and through the fact that their employers have to pay higher taxes and energy charges and thus have less to allocate to the wages or welfare that they can offer to their employees. People who live on pensions and benefits have less available to spend on everything else as they must pay more for power, both directly in what they consume in the home and as a component of making and moving everything else that they buy.
The capital cost and ongoing subsidy of 'green energy' is a terrifying future demand on the economy. It is extremely doubtful that the gap between the available sources of power and the ideal that is demanded by green campaigners can be afforded, in full, even by the most affluent economies. Not only have the so-say mature postindustrial economies lived beyond their means for decades: they have also allocated far too much to consumption and too little to investment. In terms of classical Political Economy societies have broken the Iron Law of Wages [the fact that an economy simply cannot consume more than it produces without eventually having to face the need dramatically to rectify the resulting imbalance]; and that fact has become partially recognised. But they have forgotten to combine this recognition with the equal force of the Law of Diminishing Returns: no economy can expect indefinitely to receive constant or increasing returns on investment in any given technology. The more that is spent on windpower, traditional nuclear fission, gas-fired 'clean' power stations or any other technology [whether yet discovered or still awaiting revelation] at some point in the intensification of investment the output per unit of investment perceptibly declines: and if the investment continues thereafter, the decline in productivity will eventually become catastrophic.
The optimisation of investment in power generation in accordance with the basic Laws of Political Economy requires a specificity of planning that is not yet in any government's agenda, though its importance is undeniable. Behind this point lies another, even bigger issue: the competition of investment with consumption. It is already accepted by theoreticians and by many commonsense citizens that living standards cannot rise, and may have to fall, just to rectify the past breach of the Iran Law. If the general level of consumption is to be reduced in order to fund the most expensive forms of investment in green energy, that will cause strains in civil society. If the pressure is increased to give subsidies to less-developed countries to enable them to conform with a new standard for green energy and to cease deforestation, there will have to be an even greater raid on the living standards of everybody in the relatively-declining economies in the formerly-affluent world. There is one partial experiment going on, in reducing living standards dramatically to meet basic economic principles: in Greece. The political implications of the debt-correction mechanism are highly problematic; and interestingly the Greek government has attempted to enforce property tax by billing citizens for that tax with their electricity bills. They risk loosing their energy if they decline to pay the additional tax. The world is faced with the prospect of reversing that situation: they are being asked to pay an energy tax both through the tax system and in meeting energy bills at the petrol station and through their meters at home.
If the new Accord on green energy and deforestation holds up, there are huge tax and price implications for everybody, in hard times. A new political prospect opens up: the world becomes ever less predictable. Which situation is complicated - and potentially could temporarily be resolved - by the discovery that massive quantities of natural gas are to be found in deep deposits of shale that are predicted to exist in the geology of many areas in the world. Exploratory workings in shale deposits in my native Lancashire earlier this year caused two minor earth tremors; and in the USA there have been reports of household water taps producing flammable gas and of serious disruption of aquifers that provide mass water supplies. If the process of 'fracking' the shale to release the gas is found to be safe for use in the British Isles, China and other territories where the shale has been found in abundance, investment in nuclear power and in windmills can be set aside for at least half a century. Extracting the gas from the shale is far from cheap, compared to allowing oil that is under pressure in near-surface rocks in Russia or Saudi Arabia to be released into the pipelines for conveyance to the refinery; but the shale gas is likely to be cheaper than most other 'green' energy sources. It can give space and time for the beneficiary economies to make appropriate long-term investments in energy supply for the longer-term future; but I fear that it is more likely that their governments will conspire with their people to continue in the defiance of the Laws of Political Economy.
The discovery of exploitable shale-oil and gas will provide an excuse for the governors of some economies to avoid setting out a comprehensive energy strategy that will be affordable to people of modest means a century hence. That deferment can be helpful for politicians in terms of short-run electoral game-playing, but it will do little for the survival of the species. The story of shale-oil and gas reminds one that there are always options that do not feature in the most simply stated scary accounts of the prospects that face the economy; but it does not supplant the issues that have led to the new decision of all the world's economies that there should be an energy strategy by 2020. .
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