As I've studied green issues, I have frequently come across the "buy local" train of thought, but I've never seen it embraced as completely as it was in this Gristmill post by Jon Rynn -- at least not since my undergraduate courses on international trade and economic philosophy. It's very easy to understand the intellectual impulse behind his arguments, but don't think I'm overstating the point in calling his recommendations potentially disastrous. Buying local is a common and appealing idea, so it's worth reviewing the economics behind Rynn's proposals.
Economic self-sufficiency is an old idea. Before the revolution in economic thought that began in the 18th century, it was a key part of the mercantilist economic philosophy. This widely embraced strategy emphasized that trade was a zero-sum game, and that the wealthiest nation would be the one which produced and exported the most and imported the least. It was, on the whole, a destructive and inefficient way of doing things.
The insights that slowly overturned this world view centered on the gains from specialization and trade. To illustrate this most effectively, imagine a world in which you had to do everything for yourself. To get along, you'd have to grow your own food, build your own tools, make your own clothes, build your own house, and so on. It should be clear that in such a world you'd be very poor and miserable.
If there were another person around to help you, however, then each of you could focus on a few key things. One person could spend all his time on growing food while the other built tools and made clothes. Each person would be able to accomplish more by specializing, and at the end of the day after exchanging goods, both would be better off. If we increase the number of people to 100, everyone becomes wealthier still. One person might get very good at making shoes, another would excel at animal husbandry, another at plowing, and so on. Everyone produces more than they could by doing everything themselves, and through trade, they're all able to enjoy a higher standard of living. This model is extendible to a global scale.
The production of many goods in the world economy is fairly concentrated. Take ball bearings, for instance. Ball-bearing manufacturing is a low margin business with large economies of scale (that is, the best way to make them cheaply is to make a whole lot of them). As such, there aren't all that many manufacturers. Were we to require every metropolitan area to produce their own, the efficiency of ball-bearing production would drop precipitously, and ball bearings (along with all the tools that use them) would get a lot more expensive. As a result, people wouldn't be able to buy as many ball-bearing-oriented goods as they currently do.
Everything, actually, would get more expensive. Since more people, globally, would be employed in ball-bearing manufacture, fewer people could be employed in other jobs. Labor for those other jobs would become scarcer and more costly, making whatever those workers used to produce more expensive. This would be the case for just about every manufactured good and for agriculture. By unwinding the gains from specialization and trade, we would force local areas to produce what could be more efficiently made on a larger scale. Goods would become much more expensive, workers could afford fewer goods, and the range of products available to any one consumer would be significantly reduced.
This is bad for humanity for other reasons, too. Trade is a source of insurance. Without trade, the current drought in the American southeast would be a famine. Thousands, perhaps more, would die or become refugees. Now we could say that buying local is good, except in cases of famine, but why draw the line there? Why not say buying local is good, except in cases of hunger? Except in cases of generally poor living conditions?
Trade also allows humanity to produce goods that local areas could never afford to make. There are two primary manufacturers of jumbo jets in the world. Global markets just don't support any more. Local markets would support none, in all likelihood. In a buy local world, only the richest areas (if any at all) could afford to produce computers and televisions. Most labor, of necessity, would be employed on the production of basic food and tools.
Even in the heyday of manufacturing, industries did not produce merely for local markets. Detroit didn't become rich making cars for Detroit, and Britain didn't grow wealthy making textiles for Britain. International trade was integral to the development of wealth. And the truth is, even if we did manufacture far more goods here at home, manufacturing employment would not return to the levels it once enjoyed. Technological progress has eliminated the need for many of the rote and repetitive tasks that once required manual labor. Despite steady declines in manufacturing employment, we remain responsible for about a fifth of global manufacturing output. In order to once again create a large manufacturing employment sector, we would need to roll back the gains from trade, and specialization, and the gains from a century's worth of technological progress. Doing this would leave America and the world desperately poor.
It is also absurd to suggest that we'll be left unable to import unless we increase our manufacturing output. That's simply not how the economy works. We produce and export a host of valuable goods and services, earning our country foreign exchange that we can use to purchase foreign goods or invest in foreign nations. We currently consume more than we produce because other nations are willing to lend to us. If they grow reluctant to do that, our currency will depreciate until foreign goods become more expensive relative to domestically produced goods, our exports increase, and our imports decline. It's possible that adjustments like that might be painful for the nation, but they'll be nowhere near as painful as a sudden drop in all imports and exports.
There is simply no way to localize economies and boost manufacturing employment without drastically reducing quality of life. So let's talk about the real issue. International trade allows us to use our scarce resources in the most economically efficient way, making us wealthier and giving us more choices. The use of some of those resources, however, imposes costs on others that aren't included in any price. Fossil fuels, for instance, add carbon to the atmosphere and lead to climate change, but the price of gas or coal does not include an extra amount to help pay for or forestall global warming. Because that cost isn't included in resource use, producers overuse fossil fuels, and our patterns of production and trade are therefore skewed. We use too much of some things, and do too much of other things.
Some international shipments would not take place if we all paid a fair price for carbon; the extra cost would make it more economical to produce a good locally. Other shipments would take place anyway. The inefficiency induced by producing locally would generate more pollution than producing things elsewhere and shipping them in. By deciding to just produce everything locally, we ignore these distinctions and incur huge losses. By introducing prices for negative externalities (like carbon emissions) we get to enjoy the benefits of economic efficiency and the benefits of resource protection.
Economic nationalism and protectionism have long been rightfully derided as intensely damaging to local and national economies. If we want to reduce our ecological footprint, then the most efficient way to do it will be to operate within the international trade and financial system. The desperately poor don't emit much, but that doesn't mean that actively seeking global poverty is the best way to clean up our world.
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Comments
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Sean Casten Posted 4:51 am
02 Nov 2007
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Jon Rynn Posted 5:53 am
02 Nov 2007
First of all, and I hope to make this more clear in a later post, I'm not talking about every major metropolitan area engaging in all the production needs of that area. Actually, I think that the approximately correct size for a manufacturing system is a continental or subcontinental size, which is why in my post I was very concerned to talk about the economy of the United States, not, say New York City. The question is one of economies of scale, that is, most industries have an optimal, or somewhat optimal, size. So most auto production, at one time was in Detroit, for instance, for the entire country. I wasn't arguing against that.
Now let's look at Europe, which has done the right thing and formed an economic union; or China, or India, and I think you would agree that Africa or the Middle East would also benefit from free trade within their respective region.
But also notice, in the Detroit example, or Silicon valley, or Wall Street, that industries benefit from having the various subsystems of those industries packed in closely together. While Wall Street bankers might sing the praises of globalization, they prefer to be able to commute to work so that they can have face-to-face meetings with each other. Why? Because technological innovation thrives when this is possible.
This technological innovation also benefits the manufacturing sector when engineers can go to factories and "kick the tires", as it were, and talk to other engineers. One thing economists have not been good at is explaining technological change, because they tend to ignore the entire engineering profession. But proximity is important for technological innovation, as well as production. There's a reason that economies, particularly strong manufacturing economies, are thought of as regional; that's because it makes sense economically.
Globalizing everything so that one area produces all of one particular commodity, like the Taiwanese with motherboards, if memory serves me, is bad for a number of reasons, and I'm not sure if you would support that, but let me explain. First of all, it's very strange that mainstream economics is so pro-competition, but when it comes to globalization, all of a sudden it's ok if only one area is specializing. In other words, just like other forms of competition, it's better if there are many centers of production and perhaps even more importantly,many centers of innovation. I don't think the airplane industry is necessarily a good example, because I don't know how well it will survive peak oil, but it would not hurt if there were at least a handful of airplane manufacturers.
Now let's extend that to ball-bearings, or most other products. If each region of the world -- say 10 regions, or 12, or what have you -- had their own ball-bearing center, that would be better than having one globally, for two reasons.
First, the gains from the interaction between the regional ball-bearing center and the rest of the regional industrial system would be greater, because the closer proximity would mean that interaction would be easier among the ball-bearing manufacturers as well as their customers. And in addition to smoothing out bugs, secondly, such interaction would, again, lead to greater technological innovation than one global center.
The problem of shipping things all over the world is not trivial. According to the major cargo shipping association, the carbon emissions from cargo ships is twice that of airplanes. As oil becomes more and more expensive, all of these long supply lines will seem what they are, an artifact of ridiculously cheap oil. You have argued that sprawl is not such a hot idea, why is global production sprawl such a great idea?
I'm not sure how to respond to the idea that we have a large trade deficit because people are willing to loan us money. This seems to be an argument running all the way from Bernanke to the Cato Institute. When Argentina had a huge trade deficit, nobody to my knowlege was making these sorts of excuses, which is what it seems to be. If an economy, such as the U.S. economy, cannot sell as many goods to other countries as they can sell to us, then it doesn't take a lot of theory to understand that that is a problem. The U.S. had a trade surplus with the rest of the world until the 1970s. Does that mean that the U.S. was in worse shape then?
Which leads to another question, which you attempted to answer, which is that you can't trade for all of your goods by trading services. The U.S. is imbalancing the entire global economy -- which Bernanke has also said. As you suggested, all of the wonderful negative feedback loops of the market might kick in when the world finally decides not to lend us all of their surplus capital, but that's like saying the market will handle the situation if our car goes off a cliff, so don't bother turning the car.
Let me make general comment about protectionism and economic nationalism and all of that. It seems that everytime somebody mentions keeping the manufacturing base of a country healthy, such a person gets puffed into a straw man who wants everyone to be poor (or deny the poor the opportunity to be rich) and die of thirst, as you claim. I think that it can be argued, particularly in the face of resource constraints, peak oil, and global warming, not to mention global poverty, that it might be advantageous to discuss the mantras of free trade. And the best way to do that, I argue, is not even to discuss free trade -- in my post, I didn't even mention the idea -- but to discuss how actual economies work, and the central role of manufacturing in them.
All countries that have managed to indusrialize, from the US to China, have pursued various governmental policies to encourage the construction of a manufacturing base. And just because the US economy, for various reasons, is outsourcing its manufacturing base -- to catastrophic effect, I claim -- doesn't mean that we can't turn the ship around before it's too late. And do it without worrying about breaking ideological taboos.
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Bart Anderson Posted 5:56 am
02 Nov 2007
The main problem with this sort of argument is that it is propaganda to support specific economic interests. Rather than look at actual history, to see who gains and who loses under a specific system, we launch into an abstract discussion.
Globalized trade takes place not because we think it is a great idea and we have democratically have chosen it. It takes place because it is in the interest of powerful players.
Practical politicians know that abstract ideas about free trade are bunk. The most successful national strategy is that of the Asian Tigers (and before them, the United States and Britain): build up your nascent industries behind a protectionist wall. When they are strong, proclaim your belief in free trade and support your industries as they take over global markets.
The important thing is to see what one's interests are and pursue them intelligently. Quasi-religious arguments from mainstream economists only cloud the mind.
If I were in charge of a little princedom, here is what I might do. As much as possible, isolate the community from the barrage of advertising and consumerist media. Perhaps like the Swiss, I would encourage the development of regional dialects that no one else can understand. Strengthen local traditions in food, clothing, housing - to promote local self-confidence and independence. Also, in time, tourists would discover the wonderful unspoiled culture, and bring in $$$. Encourage local farming and manufacture for most things. For specialized items and goods that would be much cheaper elsewhere, I'd look for the best deal on the global market. But my goal would be to build up the local infrastructure, rather than to be dependent on a continual stream of imports. If a geologist found oil deposits, I would swear him to secrecy and leave the oil in the ground. Later, as oil becomes very expensive, the treasure trove would be available to the princedom. Although this is a facetious example, I suspect that foresighted governments are already thinking along these lines.
Bart
Energy Bulletin
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sindark Posted 6:43 am
02 Nov 2007
a sibilant intake of breath
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Jonathan M Feldman Posted 6:46 am
02 Nov 2007
First, if firms close down operations because they are trying to break union's power or seek very low or repressed wages, then are we supposed to sanction such capital mobility and trade with such new operations simply because they are less expensive?
Conversely, if a country buys some inputs locally and imports others, but works its way up the value chain to import less and less, as Japan and China have done, then what is wrong with that? As developing country will want to do more of that. The answer, however, is that there is something wrong if the nation doing more production lacks labor and environmental standards, relatively speaking. Support these in China by all means, but realize the costs involved. Don't forget either that low cost can be the other side of low health and safety, e.g. the work environment can be poor even if the costs are less. Here you have a clear trade off between efficiency and environment.
Second, if a product is made with relatively sustainable energy sources and manufacturing procedures, there can be a more benign impact from its exports. Yet, the transport of the goods, their use, and other factors can still use energy and promote climate change, etc. Nevertheless, one has to look at the relative advantages of purchasing locally at a given scale as Jon Rynn suggests.
Third, one has to put this in context. Regions that are simply consumption envelopes, produce relatively nothing locally, and have no real advantages as producers of any service or product, might be simply be less justified on environmental grounds. I am thinking of certain kinds of resort communities, gated communities, and the like. One in theory wants to reduce the distance between work and residence. This will necessitate some degree of local goods and services. There is an employment gap for certain people, unemployed and underemployed, so there is room for more development even in the developed world. If you think I am advocated some kind of Pol Pot scheme of determining where people live, that would be silly. I am rather speaking about the incentives and subsidy the government provides to highway and automobile transit, the robbing of mass transit and the like.
Finally, there are some regions which are the byproduct of a crazy political economy in which they lack sufficient investment in sustainable infrastructure (which would provide local jobs) and are tied to a government created market that promotes their exports based on taxes. The growth in the South and some regions are becoming relatively less sustainable given periodic droughts. While they waste a lot of water, we have to realize that in the future mass migration might result fro a lack of water. So, whether or not we like it, the environment may cause migrations anyway. To the extent the automobile creates environmental disasters, we should reduce its use through various forms of localization.
For more related to this last point, see my article in Counterpunch:
http://www.counterpunch.org/feldman11012007.html
Note also, a recent article in the New York Times magazine about the drought, which brings up the specter of mass migration!
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Ryan Avent Posted 6:49 am
02 Nov 2007
There is no better or worse when discussing a trade deficit or surplus, and a comparison with Argentina is really not helpful. There can be questions about the sustainability of specific patterns, but these things don't unwind in catastrophe. We have a balance of trade and payments; goods flows in one direction are balanced by capital flows in the other direction. Terms of trade change based on conditions in trading nations' economies, relative prices shift, and flows respond to those shifts. You see this happening right now. The dollar is depreciating. As a result, imported goods are a little more expensive and our exports are a bit more competitive, and our trade deficit has recently declined.
These are complicated issues, but the idea that we need to be manufacturing and exporting more, just so that we manufacture and export more, is an intellectual dead end. It's deadly for developing economies also. If China weren't able to produce for European and American markets, then it wouldn't be able to pull a fifth of the world's population out of dire poverty. If we're upset with their pollution, then we can solve that without cutting off trade and causing their economy to collapse.
Sprawl? Jon, population is already spread all over the world. There's not much we can do about that. The question isn't whether we produce everywhere or not, it's whether we trade or not. If we create a world of regional trade blocs, we just ensure that production is less efficient, not less dispersed. Also, how are you ignoring the fact that the US, with less than 5 percent of the world's population, is producing 20 percent of the world's manufacturing output? That figure has held roughly constant for over a decade. This is a catastrophic loss of manufacturing capability?
It's easy to get caught up in bad news, but from a historical perspective, the global economy is very healthy. Are there distributional issues here in the US? Sure, but we shouldn't address those by shutting down markets. On this point, I think you'll find wide agreement from economists and pundits across the ideological spectrum.
The issue is resource use, and our poor choices on that front have everything to do with underpricing of those resources. Economist Greg Mankiw (who leans right) has established a Pigou Club, which is based on the idea that the best way to solve these problems is to tax overuse. His club's membership is as wide as anyone might hope; it includes liberal heroes (my heroes) Al Gore and Paul Krugman, among many, many others. The point is that we shouldn't disable the market, but get it to work for us.
I completely respect your desire to improve the way we do things, but I believe your solutions are misguided. We have a great deal of empirical evidence showing that efforts to dictate production patterns end badly, and often disastrously. The market isn't magic, but it's a lot better than you or I saying make that here and make that over there.
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Jonathan M Feldman Posted 7:00 am
02 Nov 2007
Much of the market is already planned.
First, take a look at the history of the "Gunbelt" in the United States (see the book, "The Rise of the Gunbelt"). Military location was dictated by politics and somewhat by the attempts to gain access to cheap labor and land, but often by location in Congressional districts with powerful politicians. The organization of military firms and the subsidies to military (and increasingly biotech) firms each are guided by federal R&D procurement and R&D choices. This means that politics will influence location decisions.
Second, the highway system was subsidized by the state, helping to decentralize or scatter residences.
Third, if you really think the market works well, see the film, "Who Killed the Electric Car?" or "Walmart: The High Cost of Low Price." The former shows the devastating policies of ill advised corporate planners and government regulators. The latter how low prices help devastate communities and workers.
Fourth, the idea that a badly planned state is the alternative to free markets is really a straw man that we can easily dispense with. I don't think Jon Rynn is talking about that. The issue is rather that government and firms can both be badly or well planned. More on that later.
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apsmith Posted 7:03 am
02 Nov 2007
But "the market" doesn't address all problems, and fixing it isn't simple. Ryan brings up the particular case of pollution and CO2 emissions, which could lead to market-driven realignment through a carbon tax, "an extra amount to help pay for or forestall global warming".
But why don't we have that? We don't have a uniform world-wide regulatory environment to establish such a thing, and as soon as you have non-uniformity in pollution laws or labor laws or any other kind of progressive regulation, there's an automatic "race to the bottom" that drives production to those regions of the world with the loosest regulations.
We need a world with a level playing field, or barring that we need to impose trade barriers that attempt to compensate for, however poorly they may, the effect of that regulatory non-uniformity. The World Trade Commission is unfortunately not set up to allow that sort of thing - it can't establish uniform regulations, and it abolishes trade barriers. So the race to the bottom continues.
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apsmith Posted 7:09 am
02 Nov 2007
While we push for solutions to global warming and our energy issues, let's argue for those solutions that generate the lowest number of jobs per kWh, because those are the most cost-effective ones and will bring the most benefit to all.
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Jason D Scorse Posted 7:19 am
02 Nov 2007
I'd like to emphasize one additional point: if we don't buy things from poorer countries they will never be able to generate the foreign reserves to buy things like medicine, computers, refrigerators, etc. and they will be doomed to perpetual poverty. There is no way a small country could ever develop its own industries in all of these areas and without selling exports they are left in an underdeveloped capacity.
Keep up the good work....
I teach environmental economics and blog at http://www.voicesofreason.info.
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Jon Rynn Posted 7:32 am
02 Nov 2007
Let's ignore for the moment the large distortions that Jonathan Feldman points out in the comment above; perhaps you would agree that the military has warped many markets and parts of the country, and that the U.S. government's pro-sprawl policies are also an example of bad policy. The deeper question, in my opinion, is the role of manufacturing, and whether we can say that a regional economy has some ideal form. I think that ideally, a regional economy would be fairly self-contained, because I think that all of the different parts of the economy, and in particular the manufacturing economy, gain because of a set of positive feedback loops that exist among them.
You might agree, to some extent, that different parts of the economy consist of virtuous positive feedback loops, but that the proper size for an economy is global, not regional. Frankly, the regional part is the hardest to argue, partly because not much work has been done on it (some work by people by Krugman, although I am not familiar with it). I'm coming at it from an engineering/production perspective, mostly.
It seems to me that the actual economic history of the planet shows that proximity in production is an important issue. For instance, you say, "If China weren't able to produce for European and American markets, then it wouldn't be able to pull a fifth of the world's population out of dire poverty"; well, obviously, if they weren't able to manufacture the goods that they are trading, we wouldn't even be discussing China. And how did they get to that point? They invited companies to come in, and they trained their own engineers, and they insisted that the companies share their expertise with their home-grown engineers -- by the way, the USSR went through a similar process -- and they imposed huge tariffs -- as the US did at a similar stage of development -- and they had a centrally controlled economy, with the central government directing much of the development. And, to top it off, -- and this part really blows my mind -- they control the exchange rate.
Now, there is absolutely nothing in economy theory, as far as I know, that would justify the control the Chinese have over their exchange rate. I was just reading an AP story quoting economists to the effect that the Chinese currency is about 40%-50% undervalued. And the effect of this is to seriously damage much of US manufacturing. And what are they doing with their surplus dollars? Storing them away, as far as I can tell.
In other words, it's not clear to me that China needs the US in order to expand. that's certainly true for the Europeans and Japanese, with which we have about half of our trade deficit. In fact, by underpricing our doemestic manufacturers, in the case of China, in the long-term they are going to hurt themselves, because at some point they will have to release their currency, and without a healthy manufacturing base the dollar will plummet, making us a worse trading partner for them.
Now, I know that talk of "regional trading blocks" scares people into visions of 1930s trade wars, and that's not what I'm talking about. Imagine a world, again, with 10 or so trading blocks, each with a healthy manufacturing sector, which can each basically produce most of the panoply of goods and machinery. It is my contention that such a global system would actually be much more stable for trade, because each region would be wealthy, and wealth is good for trade (I will talk about making this all sustainable in my next post or so, I hope).
So I'm not talking about specific industries to be created out of thin air by the government, although on occassion I think that should be part of the toolkit as well (the Japanese did so with the semiconductor-making machinery sector in the 1970s to spectacular results). What I'm talking about is more of a stewardship level, and it just so happens that the need to revive the manufacturing base of the US coincides with a couple of other huge needs: the rebuilding of the infrastructure (e.g., minneapolis bridge collapse) and the need to transform the energy, transportation, and agricultural sectors -- and urban/suburban structure -- because of global warming and peak oil.
It looks to me like a great fit -- we get a healthy manufacturing base, there's plenty of trade, we become sustainable -- and what's more, we deal with the big achilles heal of markets -- they're inability to deal with long-term problems, particularly with resource use, which we agree is a problem. But I would add that in the United States, a big long-term problem that the market has dumped on us (with a generous hand from the government, particularly in constructing a military economy) is the weak nature of the manufacturing sector.
That manufacturing sector, by the way, does look to be in decent shape by a dollar measure, but what if the dollar declines rapidly? Then we don't look so rosy and peachy. But the sheer scale of the imports in the manufacturing sector should give us pause, as should the outsourcing, as should the growing crises in human capital, because who wants to go into a declining sector?
So I guess what I want to stress is this -- the manufacturing sector is not simply a substitutable part of the economy, like using timber instead of stone, or wheat instead of corn. Even David Ricardo seemed to assume the production of goods within each nation. If the financial sector was disappearing, I think there would be a different outlook on this. Without manufacturing, no large region -- besides an occasional area, such as Bermuda -- can prosper. In the case of environmental problems, and without dealing with exporting our pollution even, manufacturing gives us the wherewithal to construct a sustainable economy. We cannot be just a service economy. And if the market has gotten out of whack over the past few decades, and we need to go into the historical toolkit and bring it back up to a world-class level, then let's be practical and do it.
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Jonathan M Feldman Posted 9:10 am
02 Nov 2007
http://en.wikipedia.org/wiki/The_Great_Transformation
or read about the role of state directed organization of economies in China, Japan, South Korea, etc.
At one point, a country like China is going to develop a huge internal market, if it is able to have an equitable redistribution of wealth. Federations of smaller states will similarly reproduce some scale economies.
As for smaller, developing nations needing exports, let us not forget that part of this pattern involved distortions (shrinking) of subsistence crops and problems associated with hunger for many of the masses, while native elites grew rich on the exports. This was the pattern in Central America.
I don't believe in all of the arguments related to "self reliance" because there are advantages to trade, even in some regulated form. There are so many ways in which really existing trade is regulated, however, that there are serious limits to the "freedom" in trade, e.g. protectionist measures.
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bookerly Posted 1:20 pm
02 Nov 2007
The argument about the Chinese Yuan and the surpluses misses much of the point.
First of all, surpluses do not all automatically belong to the government. The Chinese describe the local system as "market socialism". Much of the surplus belongs to private companies and to foreign companies which are exporting from China. We need to move away from the imagined monolithic China of old.
So, the idea that the Chinese government is awash in unused wealth is misleading. If the Chinese government just stopped exporting tomorrow, it would not be able to wave its hands and replace that export based economy with anything. Economies (especially "free market" economies) are not so easy to move, nor can they be rebuilt or redirected over night. For some reason, economists never seem to get this (at least those who write for the mainstream media, and some here (I am not directing this at Jason, who's current post I agree with (smile)).
There is the same problem with the yuan. Freeing it up would cause incredible disruptions to the local economy (well, in the long run, things would get better, but umm in the SHORT run, many people, real living breathing people would suffer), and the Chinese government wishes to protect its people. Too bad the American government doesn't feel the same!!
(As near as I can tell, freeing the yuan would mainly benefit robber barons and currency speculators. If it were freed, the US dollar might completely collapse, inflation in the US would spike, interest rates would soar, many would suffer. But those who see the chance to enrich themselves are rarely bothered by the suffering of the poor.)
As to the surpluses that do exist, China is having problems with excess investment. In a free market economy, the government can't control investment (though it can direct some of it by preferential treatment), and the Chinese government is concerned with overheating the economy (which would worsen the immediate situation of the poor through inflation, as well as exacerbate resource problems).
Simplistic solutions to complex problems aren't very useful. There is a big difference between pie-in-the-sky economics, and the real world, where getting it right should be approached carefully.
patrick in beijing
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bookerly Posted 1:42 pm
02 Nov 2007
Great post Ryan!! Thanks!
BTW, believing in global trade does NOT meaning buying into the inequalities and problems in the current system.
One of the useful things that people in developed countries can advocate is getting THEIR corporations to act differently in developing countries.
patrick in beijing
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Jon Rynn Posted 3:13 pm
02 Nov 2007
The reason China is rising is because of manufacturing. No manufacturing, no wealthy China
If the U.S. manufacturing base declines and collapses, all of the bad scenarios you describe that would attend a falling US dollar will occur, doubled.
It is to both China's and the US's benefit if the US keeps a strong manufacturing base.
Perhaps you can educate me on why the Chinese central bank has 1 trillion dollars that they're getting nervous about if the Chinese government does not have a very major control over its currency. But however that is, selling Chinese products for dollars -- not exchanging them for goods -- means that the workers and factories pumping out all of those goods that go to the US are only getting dollars in return, and if those dollars go down the tank because the US economy goes down the tank because the manufacturing sector is allowed to disintegrate because, well, the Market decries that it must be done, then lots of real flesh and blood people, both in the U.S. and China will be hurt, big-time.
ok, 3 year olds rule
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Colin Wright Posted 5:09 pm
02 Nov 2007
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odograph Posted 9:22 pm
02 Nov 2007
Put the other way, as long as Chinese carbon dioxide emissions are "free" it doesn't mater what we smaller(!) nations do.
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jdmaxson Posted 11:50 pm
02 Nov 2007
The question should be how can communities meet more of their needs thus strengthen their economy through import substitution and increased local production (not to mention all the likely benefits in terms of emissions, etc . . .).
For rural communities in particular, figuring out how to better integrate their businesses and relevant sectors into the "regional economy" is equally important--so the defintion of local becomes highly relevant.
So in the same way that much of the global economy is shaped by rules (transnational, national, state) that influence/define trade, sub-national (states in the US) policy could better serve the interests of local and regional economies by promoting policies that help grow local economies.
Respectfully submitted, I would not like to fly on a jumbo jet built in Hindman, KY or Abingdon, VA (or you name the place). When in either, I WOULD prefer to eat locally grown tomatos, sit on locally produced furniture and flip a light swtich that runs on the locally owned cogeneration plant.
Small shifts in state policy that enable local production and market integration would make a major difference in distressed rural places acorss the US.
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amazingdrx Posted 12:04 am
03 Nov 2007
Specialization, division of labor, mass production... or buy local. A large portion of goods and services can be produced locally and regionally without going back to the stone age. With every cave man carving his own wheel.
The real choice? Ship all our scrap to China to be turned into shoddy, dangerous products by prison and slave labor so we can save money at walmart. Big SAVINGS!! But no jobs. Whoops.
A shoddy intellectual product Ryan, do you work for walmart? Are you typing from a prison labor camp?
http://amazngdrx.blogharbor.com/blog
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Ron Steenblik Posted 12:27 am
03 Nov 2007
Dr. X, can we please keep the discussion civil?
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justlou Posted 12:31 am
03 Nov 2007
Eventually not only will one local region suffer the impact of overreaching its resource base but the entire planet will encounter a reckoning with limits. Our experiment running counter to billions of years of evolution, divergence, diversity and adaptation will be ulimately undone by exemptionalist organizing philosophies including the unending growth paradigm of capitalism.
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odograph Posted 12:47 am
03 Nov 2007
the idea that it is actually attractive to the world's population
that even if it is not attractive it can somehow be enforced
The US is not the center of the world. The US is not even the largest GW polluter. We are now where Europeans have been ... at best a minority player and role model.
I hope we can play the role model constructively, but at some point we will face the problem of free will. What do you do if someone, somewhere, wants a product from China? Even if you, an isolated environmental extremist wanted to, do you really think you could ever get that global mandate?
I think not, which I why I think the environmental pitch should be built up from pragmatic bits and pieces, and real engineering. I don't think it should be built from shallow stereotypes: "trade bad", "suburbs bad", "personal transportation bad." Yes those things can be bad, but they also can be done better.
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justlou Posted 1:19 am
03 Nov 2007
Not sure where you get the idea that localization is going to be mandated. By whom or what? Globalization is the centripetal force on earth now, not the pull of local communities. Do you get the "with us or against us" message coming out of the local communities?
If localization is not a choice then what other choice to people have than to adapt to the pull of the global flag?
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odograph Posted 1:44 am
03 Nov 2007
(Note that some stores are evil for important an equivalent share of their goods as Trader Joe's, while TJ tends not to be a target.)
There are better-practices (though the accounting for 'best' practices are difficult).
In my opinion though, the "shallow" visions with 100 or 200 mile boundraies are not it. They can easily rope in the bad as the good.
And to show how much this is about contagious ideas rather than good theory ... consider how few 100 mile advocates can actually describe the math that favors that number, or that plan, over any other.
X mile diets, or X mile consumption, sell because they are easy to say. On the other hand, the market works on the assumption that costs are embedded in price. When externalities are included, that certainly works.
The real problem we've had is that externalities not included.
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odograph Posted 1:47 am
03 Nov 2007
(I assume typos in the previous could be untangled by the reader.)
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Jon Rynn Posted 2:03 am
03 Nov 2007
If global warming is the first major problem in world history that can be solved wherein the role of the government is simply to manipulate taxes, then mazel tov (sorry, I'm watching fiddler on the roof), but I hope people have at least thought this through.
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odograph Posted 3:12 am
03 Nov 2007
I'll answer for you. It is priced by nature at a level that forces us to shepherd it very carefully. Same with Kopi Luwak coffee, etc., etc.
The question is a societal one. Are we willing to artificially price carbon high enough that people will shepherd carefully?
Maybe not, but I think we'll get a lot more immediate progress by changing the carbon equation for everybody, than by attracting a few dozen people world-wide to a dedicated 100-mile lifestyle.
I mean, didn't basically everyone (who didn't have a book deal based on their diet) break down in less than 12 months?
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odograph Posted 3:36 am
03 Nov 2007
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Bart Anderson Posted 4:51 am
03 Nov 2007
The believers simply repeat the dogma, the followers say "Amen!" and the non-believers shake their heads. It's like trying to argue with the people who come to your door with bundles of pamphlets. They can be very nice people and one can agree with some of their ideas, but the possibility of communication is limited.
Taboo subjects: Conflicts of interest Real-world history Other economic schools The evolution of socio-economic systems The voices of the non-elite Values other than those posited by mainstream economics (e.g. community)
I think intellectual progress will only come from outside the school of mainstream economics, or by those few members who are are aware of its shortcoming. Then, there is a possibility of meaningful discussion and synthesis.
Bart
Energy Bulletin
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odograph Posted 4:58 am
03 Nov 2007
That's the question economists, and we outsiders, face as we discuss 'interesting' questions.
It is certainly true, observable in the real world, that stiff taxes can limit consumption. One reason Denmark has the highest bike ridership in the world is that they support bikes. Another is that they put stiff fees on cars. (When I was a kid the tax on an imported car in Denmark was 100%. Not sure if that is still true, but I'm sure you can picture how it influenced the decision then, of car-or-bike.)
So I'm confuse Bart, are you saying that there is no point in pursuing, through trial and error, the right kind of incentives in the market?
.... because economists are sometimes "bad?"
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odograph Posted 5:04 am
03 Nov 2007
(When I comment there I usually do so against the common libertarian slant. Not because libertarian theory is weak, but just because it has limited application in a world with so many unrecognized externalities.)
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bookerly Posted 5:18 am
03 Nov 2007
Jon,
The money in a bank does not all belong to the bank. Most of it belongs to depositors. The bank needs to decide how to responsibly invest it. In the case of China, there are already large inflows for capital from other countries (which come because the companies in those other countries believe they can make money).
If Chinese banks took their current account deposits and added them to the capital inflows, they would dangerously overheat their economy. This would not benefit the Chinese people.
And since the money doesn't "belong" to the banks, it can't just be spent any old way they want (such as on schools). It must be spent in ways that return a profit.
So, it is important not to confuse current account surpluses in Chinese banks with money that the Chinese government can spend any old way it wants.
Certainly the road towards development seems to be through manufacturing. But many economists in the developing world (at least those whom i see in print) seem to believe that this is a transitory road, one which leads towards a more service oriented economy as wealth accumulates. Thus, the US model.
I am not sure anyone has a realistic handle on what happens when the world begins to balance out wealth among nations.
There seem to me to be two problems (or at least I will divide them into two for the moment). One is the wealth gap between rich and poor nations. This is beginning to be addressed by the development not only of China, but of a number of other nations. Though, slower than many would like, there definitely seems to be signs of movement.
This will raise new issues as the wealth centers are not long only the current developed nations (which presumably will not sink into total poverty?). From my perspective, a certain amount of the xenophobia now directed (primarily at China, though China is hardly the only nation developing, just the current leader of the pack) comes from having to accept the former "lowly" as co-equal (if not there yet, the trend seems at this time to certainly be in that direction).
This new "co-equality" makes many people uncomfortable, which leads to that certain amount of xenophobia we see.
(Frankly, when I was in the US last summer, I was amazed at the constant drumbeat of anti-Chinese articles in the US newspapers I saw, and the total absence of balanced coverage. Much worse than I expected.)
So, there is a "learning to adjust" period coming up for the people of the developed nations. I am not sure how it play out.
I will ignore xenophobic among you (smile).
The second issue, which is what Jon is really addressing is the gap between the rich and poor internally in nations. No one is doing a great job of dealing with this right now.
Yet, it will be the other elephant in the room.
And it must be addressed.
For one thing, since most of the wealth is concentrated in a few hands, it will have to be the wealthy who pay and adjust to deal with American Sponsored Global Warming. You can squeeze and cut the poor to death with very little impact.
But if the poor are to gain weight, two things must occur (economic weight meant here).
The rich have to give up some of it, and we have to learn how to do it in a sustainable way. The money to invest in this must come from the rich. No one else has it.
To all,
Let me pose another part of this issue.
Some of what Jon is proposing (with good intentions, though I don't agree with his analysis), would require a massive restructuring of the current US economy (which has moved towards a service based economy).
Look at your own communities. How many factories can you build? Where will you put? What open spaces will you sacrifice? How much more transportation can you provide? Housing for thousands of new workers?
If the economy retreats from service to manufacturing, what happens to all of those "services"? Are they really unneeded and unwanted? Will local gadgets be cheap, but nursing homes be prohibitive?
It seems to me that industry is not going to do this. They have been there, and gone. So it would require major government investment. If the government can somehow find the money (and so far, it has been unable to rebuild New Orleans), how would it proceed?
One of the problems I have with this vision is that I don't see how it would happen.
What I can envision is a massive "green" rebuilding program structured in a way that people who are currently long term unemployed get the jobs (this will require affirmative action programs on a large scale, since otherwise the racism of those hiring will lock those we mean to target out of the jobs).
That would create a newer US manufacturing base.
Recovering the old seems unlikely to me.
It would require more change than most people are willing to accept (at least in my mind) (and I am talking about the US here) (smile).
patrick in Beijing
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Nucbuddy Posted 5:29 am
03 Nov 2007
Figure 1: [...] Bicycling Shares of Urban Travel in North America and Europe, 1995
Netherlands 28%
Denmark 20%
Germany 12%
Sweden 10%
Switzerland 10%
Austria 9%
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odograph Posted 5:31 am
03 Nov 2007
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odograph Posted 5:34 am
03 Nov 2007
But my second google!
"Currently, Dutch drivers pay a 25% sales tax on new cars, a vehicle tax based on the price and weight of the car, plus a road tax based on the weight of the vehicle and the type of fuel used."
Pretty un-American, isn't it?
More over there on a proposed pay-as-you-go replacement.
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Bart Anderson Posted 5:56 am
03 Nov 2007
Where mainstream economics is best seems to be in limited domains -- the effects of taxes on bicycle vs car use in Denmark, for example. Or studying specific markets.
It's when mainstream economics tries to speak more generally that its shortcomings show. For example, when free market economists sought to re-make the Russian economy in the 90s: After the disintegration of the USSR, the Russian economy went through a crisis, far worse than the Great Depression.[54][55] The dismantling of the planned economy towards a market based one resulted in the economy being shattered, with tens of millions plunging into poverty and a severe fall in the standard of living, and triggered an explosion in corruption and organised crime.
- Wikipedia on Russia
Or in this discussion, a superficial treatment of the localization question. It's not that what mainstream economics says that is necessarily wrong; it's that it doesn't recognize its own limitations and is reluctant to admit other ways of thinking.
I've found that the best thinkers are often refugees from dogmatic worldviews. People who have left Libertarianism or Marxism or Catholicism, for example, have experienced the exhilaration of an all-encompassing system of thought and yet are very aware of the pitfalls.
Bart
Energy Bulletin
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odograph Posted 6:04 am
03 Nov 2007
Maybe we agree that the framework is good, when you really use it honestly. When you use just part of the framework, to prove some point ... that's like any other selective truth-telling.
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Ron Steenblik Posted 6:46 am
03 Nov 2007
Why do people keep characterizing economics as ignorring externalities? The concept and the term was first coined by economists (Alfred Marshall and Arthur Cecil Pigou), for cripes sake! And who measures externalities? Economists!
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Delay And Deny Posted 6:48 am
03 Nov 2007
What the primitives at Grist fail to understand is that once the steamship was invented -- it's all local.
That is, there is zero difference between producing something in Spokane and shipping it to Seattle and producing it in China.
Transportation is done efficiency and make the best use of the most efficient producer.
And, while that may sometimes lead to a "single point of failure" -- we have been able to adapt in the times of crises and either change materials, or create a second locus for production.
The most wasteful policy is mandating something be within range "by miles" as determined by what a horse and cart could move to market in, say, the 1800s.
John Bailo
Sutext:
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Jon Rynn Posted 8:17 am
03 Nov 2007
He also introduced the concept of short-term price, that is, the price that is determined by what goods are on the shelves, for instance; medium-term price, that is the price that can change according to how much production can be changed in the factories as presently constituted, and secular price changes, that is, what happens when technology changes. I thought that was a beautiful way of showing how prices change, in prose, linked to the real world. Unfortunately, the focus has moved away from being based on production.
The problem, Ron, is not that some of us might caricature economists, the problem is that politicians on the right use the caricature to argue forcefully against any rational use of government. They are the ones who need to be educated, or stopped; but then, the Democrats on their left must understand that there is more to economics than "the market is perfect".
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Ron Steenblik Posted 8:31 am
03 Nov 2007
But again, I stress: Marshall was not advocating governments trying to create clustering, but merely observing it as an interesting, organic phenomenon. Governments can, of course, create clusters of certain industries through public procurement, especially for the military. But they cannot, and should not, try to create them for other industries. If it is the efficient way to organize manufacturing and services, it will happen on its own -- just as it happened in the days of Marshall, without government "help".
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Jon Rynn Posted 8:39 am
03 Nov 2007
Half of the US trade deficit in goods comes from Europe and Japan, not China. The Europeans -- particularly Germans -- and Japanese are very wealthy, and while there is some leakage of their manufacturing to lower wage countries, manufacturing continues to be the basis of their wealth, it seems to me.
Another side of the Chinese surplus with the US are the low wages of the workers. Now, some of that reflects the lower productivity, but the Chinese government could encourage higher wages, even in foreign invested companies, by allowing for union organizing. I realize that that is a very touchy subject, so I'll just leave it there, but the problem is to increase the domestic demand, which I understand is rising as wages go up.
Something that I had not really considered was the idea that much of the surplus may actually be going to the likes of Walmart, since much of the trade surplus with the US is intra-company trade, and I thank you for educating me on the subject.
Another issue which you touch on is the everpresent problem of xenophobia in the US. I believe the Bush administration was getting ready to make China to Bad Other when 9/11 happened, which is one reason they weren't paying attention. I don't anti-Chinese sentiment playing out very deeply -- all the recalled toys, etc. hasn't really made a big difference. But if the US living standards fall because manufacturing is falling, an anger toward China will likely rise, which is another reason that rebuilding manufacturing in the US would be a good idea.
You also wonder how all this reindustrialization is going to take place. Since I don't have my own think tank, I can't be particularly specific, but I think the first step is to discuss how to do it, and there is certainly plenty of work that needs to be done that isn't being done, such as infrastructure repair and renewable energy. As to whether this is politically feasible, my "localism" post was part of a series I started by bringing up the term utopian realism, which makes my manufacturing post seem moderate. Again, as the Chinese proverb goes, you begin a long journey with small steps.
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Jon Rynn Posted 8:52 am
03 Nov 2007
I think the same idea may be a good one for governmental stewardship of the economy. I'm proposing that we need to reintroduce the equivalent of "wolves", that is, high-skill manufacturing, because to let the current trends run their course would be disastrous.
Before I got worried about global warming or peak oil, I (and some others, such as Jonathan Feldman, who has commented above), worked with the late Professor Seymour Melman on the formulation that in order to rebuild the economy we need to rebuild the manufacturing base, and in order to rebuild the manufacturing base we need to rebuild the infrastructure. The infrastructure, most would agree, needs to be run by governments (at all levels), and so would be a natural way to be a steward while not getting too involved in the economy.
Now, with ecological problems rearing their ugly head, we can extend the needs from infrastructure as the word is commonly used to infrastructure in a more encompassing sense, such as simply building millions of solar energy or wind systems with government help. Again, it's like a national park; we could have let "nature" take its course, but there is a crisis now, and so we need to move with all deliberate speed.
To get to some points odograph made as well, it occurs to me that while carbon taxes/cap-and-auction may do the job, at least partially, it's prudent to understand that massive governmental intervention into an economy is actually more conventional than relying on carbon taxes, which have never been tried (if you consider the european gas tax a carbon tax, you also have to consider that a more walkable/bikable urban system was in place before the taxes were started). So it is actually the carbon tax idea which is more "radical" than governmental intervenetion, which has a long record -- yes, much of it bad, just like markets, but much to be learned from as well.
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odograph Posted 8:54 am
03 Nov 2007
If we accept that we do not have a pure system, but instead a mixed and flawed economy (especially on the global scale), I think we have to accept that motion will be experimental and iterative.
People will try stuff (in commerce or government) and those ideas will spread. Sometimes that's good (compact fluorescent bulbs) and sometimes its bad (corn ethanol), but it evolves. No one gets to sit in their PJs one fine Saturday and design a new global system.
(I imagine a variation of Pinky and The Brain, where each week they design a new sustainable world.)
Design is good, actually, but I think it has to work incrementally. It should work with entrepreneurs at Fast Company, and it should work with educators in Africa.
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Jon Rynn Posted 9:20 am
03 Nov 2007
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Bart Anderson Posted 9:58 am
03 Nov 2007
Do you say this is an over-simplification? Look at how the arguments from the economists were used during the last century by business interests.
The impetus to start paying more attention to externalities didn't come from within economics. It's due to pressures from without, such as the environmental movement.
BTW, it's not mainstream economics alone, but also traditional Marxist economics that "wished it out in the cornfield." They don't have a much better record (though Marx himself probably was more ecologically aware than the stereotype).
Jon Rynn writes: I've been thinking of comparing the role of government in the economy with the role of a national park administration in a national park. Jon, I've been reading your posts with great interest, but this ... uh ... doesn't correspond to any reality that I know of. As a student of history and U.S. politics, and having watched the lobbies at work, I think that Animal Farm by George Orwell is a better metaphor for government.
It seems that in your posts, you are very good at developing rational, reasonable proposal ( = I agree with them). The weak point is explaining how they would come about. Considering the fierce competition of interests, how would one mobilize the political forces to enact such proposals and make sure they are properly carried out?
Bart
Energy Bulletin
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Jon Rynn Posted 10:40 am
03 Nov 2007
Now, I'm not sure if you have objections to using government to solve these problems. As far as that is concerned, both the European Union and the US constitution stress the idea that whenever possible, in a large region, the most local jurisdiction should have precedence. In other words, the more local, politically, the better.
On the other hand, if you're talking about how to organize a political movement to get these things done, the logic of what I'm saying, I think, leads me to think that what we need ultimately, is some sort of global movement -- something that the peak oil community might be further ahead on than the environmental community. Then there is Paul Hawken's idea of an unnamed global movement that is not consciously integrated.
So, to put the two together, a movement that extends from the local to the global would have to have such clout as to be able to elect legislators that would enact the various "visions" that are developed. That's certainly utopian again, although I think there are pieces of it here and there. Sites like energybulletin.net, along with other parts of the blogosphere (grist?), for instance, could be considered part of an emerging global media.
Ultimately, the Ben Franklins and Thomas Jeffersons understood that a democracy depends on an educated public. No government, no matter how perfect, can survive without an informed public. So hopefully all this will help us get there.
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bookerly Posted 11:03 am
03 Nov 2007
Recently the Chinese government proposed changes in labor law to make temporary workers permanent, and thus eligible for benefits and higher wages and such. American companies (and other foreign companies) led the charge against this. If wages went up, they would leave. A compromise was reached, but weaker than the original government plan.
Governments in all developing countries operate under constraints imposed by those who bring the capital (and therefore the jobs). If Americans really care about the wages of Chinese or other developing country workers (and there is no sign that they do!), they should require American corporations to set wage standards that are HIGHER than required by local governments along with the mechanisms to see that they are enforced!
NO government wants its workers to be impoverished if there are alternatives. (Okay, maybe the US). But in a global marketplace, capital can pit country against country, just as it pits city against city in the US. If the US can't control its own corporations, how can anyone expect developing countries (which need the jobs) to do so?
In fact, wages are rising in China, and there are worker shortages in some areas. So much so, that some companies are moving into Western China (the government having bolstered the transportation infrastructure), but some are also leaving for Vietnam (cheaper labor).
As far as unions go, do you all really believe that people are "free" to join unions in the US? Ever try to organize one? (I have, oh the tales...)
The issue for workers is who speaks for them and looks out for their rights. What kind of organization does so will vary from place to place and time to time in a country's life cycle. Demanding that US models of any be copied by any developing country is a kind of imperialism. Want to help?
Make US corporations behave better abroad.
Stop exporting garbage that is only garbage (paper is allowed (smile) and perhaps other things, but not medical waste!).
BTW, I do not speak for the whole developing world, just for me!! I do see discussions by some economists that suggest that they believe the US is in a post manufacturing stage, and has evolved into a service economy, which would be everyone's eventual goal...
Jon, I prefer the idea of "new" industrialization, of having the US be the incubator of new tech, which can then be sold to help other countries develop (while enriching the US). This is not really building locally, since the markets would be worldwide.
And I whole heartedly agree with you on the need to rebuild American infrastructure. But that is not "local" manufacturing either, though it could create many new jobs. (And again, there must be a fight for real affirmative action with teeth!)
Ummm, what is "Pinky and the Brain"?? I did finally see some SquareBob SpongePants (and culture is definitely being exported from the US all over, which puts money in the hands of companies like Disney!).
patrick in beiing
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Jon Rynn Posted 11:07 am
03 Nov 2007
First, and this might seem utopian as well, one of the advantages of employee-ownership-and-control (workplace democracy) is that the people who are lobbying, at least at a local level, are also the people who live there, so there is no (or less) conflict between the public good and what's good for business.
Second, just as ecosystems exist in a hierarchy from global down to, say, a watershed, so political systems would ideally reflect that biological reality. The issues that affect the global level -- climate, for instance, or perhaps the oceans -- should be dealt with at a global level. For a major metropolitan area, which hopefully coincides with an ecosystem (ecotopian bioregion type thing), we would have what is now considered a state government, or an extended city government, down to even a neighborhood level (advocated by David Morris, many years ago). So the idea of a monolithic "government" is as unhelpful as one "global" market.
Third, the advantage of a bioregion with a well-functioning government, with a local economy that, in an emergency, could support the population comfortably for a period of time, would be the problem that as the climate becomes more unstable, local regions will need to be able to be self-sustaining, at least for short periods of time.
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odograph Posted 11:11 am
03 Nov 2007
Is the argument between who want all these arguments to remain qualitative?
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Jon Rynn Posted 11:21 am
03 Nov 2007
Anyway, to respond to another reference by Odograph, since I'm sitting around on a Saturday designing the world (although not in my pj's), I'll try another utopian plan-to-save-the-rest-of-the-world idea --
Yes, it would be a very fine thing if the US + Europe + Japan would earmark, oh, say, one trillion dollars a year, to build machinery factories in the developing world, and to build technical schools and engineering departments in those developing countries, and leapfrog the whole awful problem of getting the capital to build your means of production (thus avoiding the Soviet starve-your-peasants model or the Chinese let-the-corporations-come model, or the one that never works, sell-your-oil-or-resources model).
By doing such "good works", particularly the US would do its machinery sectors a huge favor, they would provide a huge market for said sectors, which within the manufacturing sector are themselves the central sector. Needless to say, this would provide the foundation for wealth in the rest of the world.
Now, we'd have to add to that the problem of global warming/peak oil (GW/PO), which would sidestep the whole ridiculous "you-do-it-first-no-you-do-it-first" argument going on between China and the US; we'd help China (and other developing countries) set up solar panel factories (or help them expand, in the case of China and India), wind turbines, trains, retrofit material, etc. So, you solve global warming, peak oil, world poverty, and US decline, all at the same time. What's not to like?
BTW, there are some in the progressive community here, like the Air America Radio talk show host Thom Hartmann (you can get podcasts) who often talk of fair trade, that is, insist that other countries must uphold basic worker and environmental laws in their countries or face large tariffs. And as you know, the union movement faces huge problems in the US -- and much of that has to do with the decline of manufacturing, which throws unionized workers out of work.
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bookerly Posted 1:51 pm
03 Nov 2007
Hi Jon,
I will look for Pinky and the Brain when next I pass through the states..
It is useless to beat other countries on the head over labor and environmental laws. Americans need to require American companies to meet American standards (or the other countries, whichever is higher) when they are abroad. THAT would be more useful than yelling at a poor developing country to enforce standards when the American companies are threatening to go elsewhere if they do.
Part of the US union problem is that the laws are stacked against workers, and against organizing. Until that changes, it is all meaningless.
Bioregions are not a useful idea (IMHO). For one thing, they often cross national boundaries. For another, many of the metropolitan areas in the US have multiple governments (some many multiples!) which prevent effective government. And how does one set boundaries anyway?
OTH, I do believe that regional government is sorely needed in the US. It is too easy for cities to dump their problems across a nearby border, and for suburbs to zone out the poor without consequence (oh, wait, except for more GHG).
Fair Trade needs to begin with Americans insisting on American companies meeting good standards. From that would flow all the rest...
But in truth, I see little support for this. (I have picketed for fair trade in the US, and found not much support from the public. Sadly.)
patrick in beijing
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Ron Steenblik Posted 6:11 pm
03 Nov 2007
Think about what you are saying, Ron. Pollution and environmental degradation have existed as long as humans, but economists were the ones to put them in a box and label them "externalities" because they were external to their model and not worthy of consideration. Like the boy in the Twilight Zone episode, they "wished them out to the cornfield."
Do you say this is an over-simplification? Look at how the arguments from the economists were used during the last century by business interests.
Yes, I am saying this is an over-simplification. The concept of an externality was created by economists to explain costs or benefits that economic agents (individuals, firms) were externalising -- imposing on others -- because they could. Economists were not "wishing them out of the cornfield", they were trying to understand them better.
Pigou, for one, was very concerned about externalities, and saw them as providing sufficient justification for government intervention. To save (my) time, let me quote from The Concise Encyclopedia of Economics:
The reason was that if someone was creating a negative externality, such as pollution, he would engage in too much of the activity that generated the externality. Someone creating a positive externality, say, by educating himself and making himself more interesting to other people, would not invest enough in education because he would not perceive the value to himself as being as great as the value to society.
To discourage the activity that caused the negative externality, Pigou advocated a tax on the activity. To encourage the activity that created the positive externality, he advocated a subsidy. These are now called Pigovian taxes and subsidies.
Pigou's analysis was accepted until 1960, when Ronald Coase showed that taxes and subsidies were not necessary if the people affected by the externality and the people creating it could easily get together and bargain. Adding to the skepticism about Pigou's conclusions is the new view, introduced by public choice economists, that governments fail just as markets do. Nevertheless, most economists still advocate Pigovian taxes on pollution as a much more efficient way of dealing with pollution than government-imposed standards. [My emphasis.]
So, while I agree that the environmental movement has provided much of the impetus to start paying more attention to externalities, I would not agree that economics has stood by idly on the side. Do not confuse corporate leaders (who do not so much deny externalities as argue that internalizing them would put their companies out of businesses) with economists. You do no justice to a potential group of allies, Bart, by turning the latter into straw men.
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amazingdrx Posted 11:29 pm
03 Nov 2007
Sorry to be impolite, but given the level of sophistry of some self important free marketeer "economist" mules. A whack is sometimes necessary.
As you can see it had zero effect so far.
Jason had to endure similar training. Academia tends to develop corporate friendly attitudes in its acolytes. The more deft they become at mass delusion, the higher up they seem to rise.
It's a pity that even so glaring a falacy as this false dilemna is glossed over in a rush to intellectual status gaming. Kissing the ass of power, so to speak.
http://amazngdrx.blogharbor.com/blog
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Ryan Avent Posted 1:00 am
04 Nov 2007
Yes, the government is involved in many aspects of the economy. The vast majority of that involvement comes in shaping the institutional environment, however, which is quite a different matter from advocating specific production decisions. I think it's clear that in a world of better policies, some production would be more localized, but I'd also bet a lot of money that the volume of trade would increase. It's incredibly difficult for a central planner to know what ought to happen in any specific area, which is why I advocate improving policy and letting the market sort out where to trim, where to expand, and where to shift.
Jon, I think you your focus on manufacturing is very misguided. On a per capita level, we out perform the vast majority of world economies. You suggest this might change if the dollar fell, but if the dollar fell, our exports would suddenly be dirt cheap to the rest of the world. Demand for those exports would grow substantially, boosting our share of global manufacturing.
Many aspects of the service economy are simply parts of the manufacturing production process. Finance, accounting, research: these are parts of the manufacturing business, and just because the actual assembly is done elsewhere (and often it isn't) doesn't mean we aren't contributing to the value added in manufacturing goods.
There are advantages to locating close together for many businesses, but for others, those advantages were long ago exhausted. As transportation costs fell through the last century, the importance to manufacturing concerns of being near each other eroded, and those firms then dispersed. In new industries, it's helpful to be near other firms because there is constant experimentation to optimize unfamiliar technologies. For old processes, there is little left to be learned, and the cost of being near other firms (who bid up labor prices), outweighs whatever knowledge benefits remain. If you force (or strongly encourage) firms using old technologies to locate near each other, you just increase their labor costs, and as a result, they'll produce less. You can't force the market to do what you want.
In many ways, I think Jon and I want the same thing. My approach, however, is to find the weaknesses in our institutional structures and improve them. Resource prices don't include negative externalities? Price them in. Transportation funding biases us toward over-intensive use of fossil fuels? Rectify the distribution of funding. If you improve the institutional environment, then the market will adjust, mitigating the costs to the economy of the adjustment. If you legislate the actual changes in production, however, you sharply limit the extent to which the market can move resources around to find an optimal distribution given constraints. It keeps bumping up against statutory walls, and those walls mean losses.
And I think you disregarded my point on the insurance benefits of global trade a bit too quickly. If we can expect large supply shocks in the future, due to warming or peak oil or whatever, then the presence of a robust global trade network will allow us to handle those shocks. Before insurance markets, farmers spread their fields around villages, even though one connected plot would have allowed for more efficient plowing and harvesting. This was because an unexpected event--a flood, animal infestation, etc--would be less likely then to wipe out all of the farmer's holdings. Regional economies will be very vulnerable to localized disasters; the global economy far less so.
The main point is that relative to just about any period in the industrial area, the global economy is in good shape. We are not facing economic crisis. We are facing environmental crisis. It's important to understand that a healthy economy is an asset in addressing environmental problems, and not a hindrance. We can do everything we need to do without drastically altering the way the economy works. Focusing our effort on rebuilding the basic structure of the economy is liable to utterly distract us from the key issue--climate change. We know right now what it will take to stop warming. We can do it with currently available technology. So let's work on that--the task is heady enough, I think you'll all agree. If we do it correctly, we'll solve many of the problems Jon references without ever having to speculate about where we ought to move what.
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Jon Rynn Posted 2:33 am
04 Nov 2007
-- 1) I think economists should be very alert to the possibility that as the dollar goes down, exports will not go up commensurate with the fall. I did these calculations a vcouple of years ago, but the fall in the dollar compared to the euro and yen were leading to increased goods deficits. Something to think about.
Building trains is something the government has to do, that is, building mass transit, which I think you would agree, is crucial to better urban patterns. The same applies to much of the infrastructure, and may apply to the electrical grid, at least
I wish my intellectual mentor, Seymour Melman, was still here with us, because I think he was one of the great industrial engineers of the postwwII period. But he isn't. So, I will say, before reading your sources, that there are great benefits of having an entire suite of industries in one region. Think of trains -- you need machine tool industries, steel industries, etc., that are also world-class. I too am thinking about higher tech, not lower.
Off to the aquarium!
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justlou Posted 3:44 am
04 Nov 2007
See my earlier post. If you read it, your argument shows you didn't buy it.
The global economy is bringing us disaster on a global scale as the cumulative "local" disasters snowball. Globalization, once again, blinds us to feedbacks essential to our survival and promotes exemptionalist and cornucopian world views. One giant, maladaptive beast.
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Bart Anderson Posted 3:45 am
04 Nov 2007
The problem is that there is a Dr. Jekyll-Mr. Hyde aspect to economics.
On the one hand, there is the rich history of economic thought with important and intriguing insights like those of Pigou, Jevons, Malthus, Ricardo, Marx, Keynes, and Pareto.
On the other hand, there is the closed system of economic discourse that now prevails. It's an over-simplified fairy tale that does not allow discussion of critical subjects, such as unequal power relations. For example in Ryan's post about trade that begins this discussion, there is no mention of imperialism - the key to understanding how trade relationships were established.
Despite the possibilities for meaningful economics, in reality it mostly functions as an updating of Dr. Pangloss's philosophy: Tout est pour le mieux dans le meilleur des mondes possibles"
("All is for the best in the best of all possible worlds").You may be out of work, your community may have become a slum, but at least bathmats are a bargain at Walmart. Even that staunch advocate of globalization, Bill Clinton realizes that globalized trade is becoming a tough sell as people feel themselves to be hurting.
The most interesting economic ideas are coming from outside the current mainstream: Ecological economics, happiness studies, and alternatives to the GDP. And it looks as if Keynsian and Marxist economics will only be re-discovered when there is widespread unemployment and demonstrations in the streets.
So, yes, hip-hip-hooray for good, critical economists who venture outside orthodoxy. But boo-hiss to economic fairy tales that omit reality and numb thought.
BTW, I agree about Pigou and note with approval that economists in general favor a carbon tax and higher energy prices.
Bart
Energy Bulletin
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caniscandida Posted 5:09 am
04 Nov 2007
if it matters what someone who understands next to nothing about any of this thinks, the high quality of your discussion has made this thread remarkably civil, helpful and intelligent, definitely one of Gristmill's best. You should congratulate yourselves.
Bart,
although the bona fides and courtoisie of (nearly) everyone here have been impressive, and I find much to admire in (nearly) everyone's contributions, I think I am morally closest to the perspective that you have been taking.
Of course you know that Voltaire, one of the greatest satirists of all time, is usually not also considered a great original philosopher. But Leibniz is; and while we may not agree with his doctrine about "this is the best of all possible worlds," it is deeper and more respectable than Voltaire's parody of it would suggest.
Voltaire, by the way, was a very shrewd businessman, and managed to enrich himself, in a pre-industrial, minimally entrepreneurial century when that sort of thing was rarely possible, if you were not, say, a conquistador -- a sure sign that he was not a serious philosopher! To escape certain legal disadvantages that came with living in France, he established himself in francophone Switzerland. Ron Steenblik probably passes close to Voltaire's estate, during his commute from Paris, as he approaches Geneva.
Chickens are our cousins! So are fish! So are other sentient animals! Let us learn to be kind.
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Ron Steenblik Posted 6:14 am
04 Nov 2007
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caniscandida Posted 7:09 am
04 Nov 2007
(Or is it Louis seulement, et non plus?)
Yes, Ron, you are right. JustLou has written many welcome and worthwhile things, in many threads.
Chickens are our cousins! So are fish! So are other sentient animals! Let us learn to be kind.
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odograph Posted 7:46 am
04 Nov 2007
(Don't trust The Count, he counts things.)
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Colin Wright Posted 7:51 am
04 Nov 2007
I'll let him speak for himself, but I don't think this degree of central planning is what Jon had in mind. More often than not, progressives suggest tweaking the system through carrots and incentives, as well as regulations. Here, for instance, is Jeff Faux, writing in the American Prospect.
Most basically, the United States cannot maintain its living standards in a global economy without a healthy industrial base. This will require increased public investments in infrastructure, education and training, and research and development -- but all geared toward ensuring that new products will be produced in the United States. An expansion of state and local technical assistance to manufacturing and the elimination of obsolete tax incentives to invest overseas should also be part of the package.
Towns and cities all the time try to attract high-tech (and biotech) companies through tax breaks on rents and profits. Though Jon also advocates for preferencing employee-owned firms to dissuade outsourcing, and promote infant industries.
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odograph Posted 8:00 am
04 Nov 2007
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trock Posted 12:50 pm
04 Nov 2007
Do you cook and process your own food that you eat?
Or do you eat in a Restaurant for everything you eat?
Do you clean and wash your own dishes and the table that you eat from?
Or hire a maid to do it?
Do you drive yourself to work?
Or hire a driver?
Do you mow your own lawn? Put fuel in the lawnmower? Vacuum your own house? If you move to a new home, do you pack your own dishes and clothes and move the boxes yourself? Paint your own house? Put oil in your car? Pump your own gas instead of at the full service isle? That's with out counting the taking care of kids.
If you do all those things for yourself, it doesn't get counted, but it is still all the things make up and benefit our lives.
Here's a quiz. If you added up all the counted labor at what it gets paid at and then added up all the uncounted labor, but give it the value of minimum wage, which is greater?
I have no references to the answer, but from what I read, the minimum wage, non-counted labor is greater. If I'm wrong, set me straight.
What does this mean about the question here? Just like every one of us doesn't buy every product and service from the economy, regions of our country may be better off doing things for themselves.
Which is easier for a depressed region of our economy to do, develop an industry that provides for good and services that we know people need in it's own region or try to bump out products from someone else's region? My guess is to develop it's own industries unless the comparative advantages are too great. Like trying to grow tobacco in Alaska when the better place would be Cuba. (Ok, not the best example)
Just like if I don't make enough at my job, I'll take over many of these things myself. If I'm very busy at my job, like working at 80 hours a week which many people have done at some time in their lives, they have to pay somebody for these goods and services from the economy.
The same would be true for regions in our economy. Food production would be an area that could be produced if the inputs are available.
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Jon Rynn Posted 1:08 pm
04 Nov 2007
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sphinxie Posted 10:08 am
05 Nov 2007
As I'm sure you are aware, when we have diverse local and global economies, both of which can, roughly speaking, cover our necessities, we are far more resilient and adaptable moving into the future where energy sources for transportation, as well as global trade balances to a lesser extent, are uncertain. For example just as the drought in the southeast highlights the advantage of a spread out food economy, having some food economy (diverse, covering the necessities) in the southeast would also have advantages which would be highlighted under different circumstances. Imagine if we were having a drought in the midwest instead--that would not as well for your argument.
Certain products are best produced in extremely concentrated, large-scale ways. But surely there are a fair number of products that are actually best produced on a smaller scale, and where a greater number and diversity of producers and production centers would be more advantageous.
Also just as there are benefits to global trade (lower prices for 'exotic' goods, for example) there are benefits to local trade. For example with food, in most cases you get fresher food. In the case of manufacturing, I'm not entirely certain what advantages would be, not having much experience of such, but there may well be such advantages. Perhaps greater diversity in the local culture, more variety of jobs, and a source of pride for the local economy.
Finally, yes we would presumably be overstrained and impoverished if we had to make every single thing we wanted to have--food, house, clothes, medicine, etc. However, I would argue that we are also impoverished when we do not make almost any thing we want to have, it is all provided to us. How many people are working in low-skill jobs which provide almost no satisfaction and feeling of accomplishment, because there is not a strong demand for skills which provide a feeling of accomplishment in their area or areas which they have access to. I am not suggesting that every factory job fills the heart with joy, but small scale manufacturing is traditionally an honored and appreciated area in which to work. Having a greater variety of work choices would be enriching to a local culture. It's the choices which are enriching--again, no realistic advocates are talking about chaining ourselves into an absolutely local economy.
Finally, to sum up, there's two sides to every coin. Just because an extreme of one thing is not desirable does not mean that the extreme of the other thing is desirable, or that there is a flaw in the first thing.
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Ron Steenblik Posted 4:52 pm
05 Nov 2007
Others are suggesting strengthening local institutional and physical infrastructure. While the former is always a good idea, the latter needs to be approached with caution. It depends on what infrastructure. In the case of roads, expenditure in anticipation of future economic activity may simply promote sprawl. (A good example of that is provided in Robert A. Caro's classic book, The Power Broker: Robert Moses and the Fall of New York.)
So, what's another policy approach, increase tariffs? Besides that being a counter-productive idea, it is not a realistic option: the United States has bound its most-favoured nation tariffs (i.e., the ones it applies to goods imported from other WTO member economies) on manufactured goods at very low percentages, and is a party to an increasing number of free-trade agreements (like NAFTA) under which it has reduced tariffs on manufactured goods to zero.
OK, so how about incentives to attract investment? Unfortunately, this is an all-too viable option, and is spiraling out of control. A few years ago, a couple of researchers at Iowa State University estimated that local and state governments in the United States were already spending on the order of $50 billion a year in tax breaks and incentives to attract investment. Guess who's been the main winners in that war of attrition? Corporations. Indeed, the rise of local investment incentives has itself spawned a new industry -- site location consultants, who work for generally anonymous clients and deftly play off one community against another.
That is not to say that all local development expenditure is bad. But it needs to be done wisely. One group that is working to improve the situation is Good Jobs First. I encourage fellow Gristers interested in this topic to check out their website, and to obtain a copy of its director's excellent book, The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation.
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odograph Posted 5:11 pm
05 Nov 2007
The ideal thing for me would be carbon-content labeling. I think the British are experimenting with that now.
That would allow consumers to make rational choices about best products, and not just ones based on one litmus test or the other ("globalization good" or "local good").
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Jon Rynn Posted 11:51 pm
05 Nov 2007
First, I may have used the word "optimal" somewhere, but you're reminding why I shouldn't -- I think it's not a vary useful concept, although I know economists like it. I prefer to think of the economy more in evolutionary terms, so that precise prediction is not possible. Which brings me to
2), I'm not sure who suggested that government could determine an optimal pattern. I have been urging more of a "stewardship" role. Even in the real world, outside of the central planning of the USSR, countries like Japan and even China post-Mao have been using what has been called "guidance", which sounds similar to "stewardship". The historical record shows that government-private partnerships can work very well. In fact, even in allegedly socialist Sweden, government-corporate-labor consensus-building has helped lead to a wealthysociety that is trying to be sustainable as well.
Of course we've made humungous mistakes in picking a car-based transportation infrastructure, but to blame the whole idea of infrastructure for that is like trying to blame the entire idea of government on the New Orleans tragedy. As I think you've argued before, we should be arguing about different types of "governance", that is, we must always choose, as a society, what type of transportation infrastructure we want -- the foundations of any transportation system is a social decision, not a market one. So, we must go back to the infrastructure that was being developed before the unfortunate discovery of oil, and become train-centered
I think we can agree that subsidies suck, to put it in technical language -- although you informed us that Pigou talked about the advantages of subsidies (Melman was very anti-subsidy, thought it warped the production system, so I'm wondering if Pigou was right there. I'd rather see simply direct investment instead of subsidy). By the way: Are we all Pigouists now?
and Odo, my original intention within these threads was to focus attention on production, not consumption, something that an engineer should get jiggy with, no? While I am aware of all the nice things consumer choice can do, I think we need to, and have been, starting on an important discussion of how and what things are produced in our civilization.
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justlou Posted 12:35 am
06 Nov 2007
Environmental historians like William Cronin gave us a sweeping view of how frontiers were developed and how trade expanded development inside and outside those frontier areas. A masterpiece, "Nature's Metropolis, Chicago and the Great West", "is the story of city and country becoming ever more tightly bound in a system so powerful that it reshaped the American landscape and transformed American culture. The world that emerged is our own."
Books like Cronin's give us the full range of the development of economies from the local frontier communities to the global level, how local communities interacted and grew through trade, the development of transportation networks and technology, and how all this impacted on the natural resources and ecosystems within which all this happened. This really puts all that economic mumbo jumbo into perspective.
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Ron Steenblik Posted 1:07 am
06 Nov 2007
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justlou Posted 2:13 am
06 Nov 2007
You are probably right. Although looking at it now with hindsight, this does give some perspective on the environmental determinants as well as technology that would provide some shape to future developments.
It also give some idea of how that future might have been different had the Midwest continued to rely mostly on river travel vs. developing the rail and road system. Or you could take some other key ingredient like the northern forests that provided essential lumber out of the mix lumber and imagine how things might have developed differently.
It is also fun to postulate on how development might have happened differently had the French vs. the English and then the Americans maintained control. Would the French' concepts of land use and relations with the native Americans shaped a radically different pattern of development?
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Jon Rynn Posted 2:44 am
06 Nov 2007
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odograph Posted 2:59 am
06 Nov 2007
You aren't talking White Man's Burden here are you Jon? ;-)
(nine billion minds is a lot of brainpower, and to paraphrase sun microsystems, you have to make a plan based on the fact that the smartest people are 'elsewhere.' the market makes that humble assumption, but serious planners seldom do.)
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Jon Rynn Posted 3:47 am
06 Nov 2007
And here's another one for you -- the closer we get to real serious trouble, the more government and central planning will be required. Conversely, the sooner we come up with some serious public/private planning to get out of this mess, the less governmentally-directed planning will be required. If we wait until it's emergency time, the government will just about have to take over the whole economy. I'm trying to put forward ideas that would prevent that.
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odograph Posted 4:15 am
06 Nov 2007
I don't doubt some 'shocks' could yield some 'emergency measures.' The Great Depression and the World Wars provide models for that kind of thing.
But (a) I'm not sure central planning will get strong traction in this society without those shocks, and (b) I don't think we'll know the nature of the planning until we know the nature of the shocks.
And so, history moves like a slime mold, reaching its waxy tendrils into spaces that will be the future.
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Jon Rynn Posted 4:26 am
06 Nov 2007
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Nucbuddy Posted 2:38 am
14 Nov 2007
Externalities are shared risks (also known as shared costs or shared harms). They have nothing directly to do with quantification. See also:
en.wikipedia.org/wiki/Tragedy_of_the_commons
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