Kate Raworth’s “Doughnut Economics” is a great starting point for new thinkers

Kate Raworth is an author who can’t be ignored. Google her book “Doughnut Economics” and you get 155,000 results. In September 2020 Goodreads had 549 reviews and Amazon 469 ratings. Her book is lucid and accessible and I love her chapter headings. She has an extraordinarily comprehensive list of references.(Some chapters have 90-100)

This is a comprehensive review of orthodox economics over a few centuries. Her “doughnut” metaphor describes the realm of a living habitat for humans as being only in the doughnut. We have to be lifted out of poverty to reach a certain minimum standard of living, yet not consume so much of the earth’s resources so that we are breaching planetary boundaries. Her doughnut is unforgettable and will go into future economics textbooks. She describes a social floor for wellbeing and an ecological ceiling. 

To illustrate her strong call to rethink economics she packs her chapters with a dense and interesting mix of facts and trends within economics thinking. The strength of this book is that because of Raworth’s deep understanding of the history of economic thinking she is acutely aware she is just but one thinker in a chain, and that there will be another generation of thinkers beyond her. She regularly invites her readers to think our way out of this mess and tempts us with numerous leads. She is an advocate of drawing diagrams. 

However naturally there are omissions and blind spots. 

Naturally when reading a new book on new economics (I have written two) I go straight to their bibilography and there I find a good list on the topic of money and an excellent one on tax –Gaffney and Harrison, Henry George, Michael Hudson, JS Mill, Ricardo, Josh Ryan-Collins and Peter Barnes. I also find Michel Bauwens on the commons and Janine Benys on biomimicry.

So here is what I think a list of what the next generation of thinkers could productively focus on:- 

First Omission – asking what is the root cause of the growth imperative?

One of the more irksome features of her discussion is that she never really asks what causes the growth imperative. She doesn’t appear to stress that it is built into the system. While she cites many who write on money creation including Benes and Kumhof, Charles Eisenstein, Michael Hudson, Steve Keen and Bernard Lietaer but never seems to use the phrase “interest-bearing debt” or explore the consequences of issuing money this way. She dabbles but pulls back when it comes to probing important leads. I urge thinkers to read Chapter 2 of economist Richard Douthwaite’s book The Growth Illusion, where after a discussion about the consequences of issuing money as interest bearing debt, he concludes. “In our present economic system, the choice is between growth and collapse, not growth and stability…The alternative is slums, dangerous roads, old factories, cramped schools and stunted lives.” Douthwaite, like Raworth, was a development economist who spent years on overseas aid work,  and in the process he had to spend time relearning and unlearning economics. 

Second Omission – the role of power

When I was a  full time advocate in the smokefree campaign in the 1980s, I watched public opinion change over a decade of debate and conflict. I was high profile in the media for a decade. On non-smokers’ rights I was a controversial figure in many households, workplaces and clubs. The health lobby, equipped with all the scientific facts, gradually and painfully learnt the reality of political power. We started to understand the subtle influence of the tobacco industry, and came to realise that the frustrating reluctance of politicians to move was because they were waiting for public opinion to change. So I always notice when an academic advocates for change and appear to imply it happens without pain and struggle. The famous quote of Mahatma Gandhi, “First they ignore you, then they laugh at you, then they fight you, then you win” is relevant here. So even a passing reference to the role of power and the agony of the political struggle would have been helpful here.

Third Omission – the importance of currency design 

Kate Raworth leads us to the insightful author Silvio Gesell, summarises his argument for a demurrage currency, chooses the best quotes from him, and then pulls back. I urge the next generation of thinkers to follow through this clue, because the design of money changes everything, from purchasing behaviour to investment patterns. If Keynes called Gesell ‘an unduly neglected prophet’ we should really pay attention. She has a whole chapter called ‘Design to Distribute’, but completely omits the critical nature of currency design. 

She has read Bernard Lietaer, or at least one of his books, but the next thinkers should read the more of Lietaer and think deeply about his argument that the design of money affects human economic behaviour and that there are good examples in history of a dynamic, successful societies where dual currencies contribute to this result.

Fourth Omission – Energy Decline

I am not sure I do it justice either, but those who understand that because of peak oil the net energy in the industrial system must decline, also know that we have to live with progressively less net energy. That is a big concept because economic growth has for decades been closely correlated with energy growth. 

When it comes to discussing the regenerative circular economy,  where the essential concept is to ensure we can unmake everything we make. I am not sure how this fits with the Second Law of Thermodynamics says that processes that involve the transfer or conversion of heat energy are irreversible. … It  also states that there is a natural tendency of any isolated system to degenerate into a more disordered state. As energy is transferred or transformed, more and more of it is wasted. So the circular economy is not that simple.

I am rather inclined to agree with a University of Otago scientist Craig Anderson who recently wrote on an email discussion, “Concepts like Doughnut Economics will not achieve what we need – they sound lovely and the heart is definitely in the right place – but these concepts are still not yet grounded in the realities of the remaining resource base and energy constraints.”

Fifth Omission – Land Tax reform

She has spent a few pages on Henry George who would replace income tax with land value tax and on the origins of the board game Monopoly. This occurs under the chapter heading Design to Distribute. But she doesn’t really convey that land tax is the most powerful way to distribute wealth. Those wanting to take this topic further should learn about the value of inner city land, not just rural land and learn from Georgist organisations like Progress in Australia for more information. A discussion of the relative merits of capital gains tax, land value tax, death duties, wealth taxes, estate taxes would have been useful.

This book is a must read for any critic of orthodox economics. Raworth concludes, “We are all economists now”. So if we are to survive, we can’t avoid this discipline. 

 

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Councils should have power to create rates vouchers

Councils should have the power to create rates vouchers

Recently we heard from Auckland Council about their dire financial situation. The Herald reported 23 May 2020 that they had “put together a $65 million hardship package for people struggling to pay rates as a result of the Covid-19 pandemic. They were also looking at reducing some services temporarily and selling or leasing more non-core assets.”

Mayor Phil Goff “has firmed up a Herald report this week that council stands to lose $500m in the next financial year”, saying the council expects to have $550m less cash and it is conducting a review of jobs with redundancies likely.

Frankly this is not on. As citizens we rely on councils for potable water, sewage disposal, community halls, swimming pools, libraries. Without functioning wastewater systems we would have floods every time there was a downpour. After the 2001 earthquake Christchurch citizens told us how important it was to have water and it was more basic than having electricity.

In January Hutt City Councillors held initial discussions about what’s been recognised as a national challenge facing local government – funding the renewal of water infrastructure, with some estimating the investment required across the country to top $17.2 billion over the next decade.

And then there are the wastewater and stormwater systems to maintain and upgrade. The ‘three waters’ deliver public health, economic and quality of life benefits for communities.

So we solve one health crisis and are threatened with another.

For years Councils have been telling central government that they can’t continue to require higher standards for the purity of water and other legislative requirements without the matching funds to do this. The burden of climate adaptation falls mostly on councils as they struggle to get their wastewater systems upgraded to cope with more severe floods. They are faced with having to retreat from the coast after coastal erosion has made sea walls impossible to keep rebuilding.

The Fox River landfill disaster after a downfall in southern Westland was the first of many.  Almost 20 historic landfill sites in the Tasman district are at risk of being exposed by storm surges and sea level rise. Auckland has 89 of the 112 landfills nationwide at risk from just half a metre of sea level rise, and dealing with them may come down to excavating and completely moving them.

In summary Councils have too little money for too much responsibility and that includes keeping residents safe from big weather events and from health hazards of declining water standards, rising sea levels, waste pollution.

The Covid 19 situation means that local authorities now face rates defaults and deferrals, especially from business. We are now in a situation where, no matter how much we all want to support local businesses, in reality after our first burst of enthusiasm we are more reluctant to part with our dollars and just walk past the cafe. Just hold on to the money, you might need it in the future, says our lockdown brain. The problem is we have a currency that is trying to be a currency for saving and a currency for spending at the same time, and these functions clash, particularly in deflationary times.Councils need another superpower

Now we come to the suggestion. Various schemes have arisen  in communities since the lockdown.

SOScafe.nz was set up in March by David Downs following the announcement. Through the site people can buy vouchers or gift cards for their local cafe and restaurant, which can be redeemed at a later date, ‘when this is all over’.

This morphed into SOSbusiness.nz. You can now buy vouchers for businesses in 28 regions of New Zealand online. Garden centres, local hardware stores, cafes, greengrocers, hairdressers and dressmakers are all in. Everyone is asking the question: How do I support my local businesses? What can I do for my community economy? The only trouble is that to date the councils haven’t considered themselves part of the action. And of course the single store vouchers have a very limited life. A voucher is bought then redeemed at the issuer’s store and then it is all over. It doesn’t circulate any more than this.

This proposal is that only when it is redeemed at the council for rates it is cancelled because you only need one issuer, the Council. When it comes back to Council in the form of rates it is cancelled. The rest of the time it circulates as a currency in the community. Unless this local voucher is redeemable for the payment of something essential like rates  it will not circulate properly. That is what gives it its value.

Time for a New Superpower for Councils

Unprecedented times means we consider what was previously unthinkable. Local Councils have legislative power to levy rates on homeowners, but they do not have the power to issue money. As Reserve Bank Chief Economist Yuong Ha told broadcaster John Campbell on Tuesday May 19th, the Reserve Bank has this power to create money . “It’s our superpower”, he said. “Just as the Government’s superpower is to levy taxes and change them.”

So if we gave Councils the power to issue money, what would that look like? It could be in the form of a rates voucher, good for the payment of rates to that Council. The former leader of the Social Credit Party Bruce Beetham when he was Mayor of Hamilton in 1976 proposed financing municipal projects with “rates vouchers”, but the council’s lawyer advised it was illegal and it never got any further.

It is time to make these vouchers legal. In order that they facilitate as many transactions as possible and do as much good as possible they should be designed to circulate fast within the council’s area. So they should decay in the same way as ordinary goods decay. Manufacturer Silvio Gesell in the late 19th century’s Long Depression had unusable goods in Argentina warehouse, while he noticed those with money just hoarded it or increased their money due to interest. He argued that money if it is to represent goods must have the same undesirable qualities. He wrote,  “Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron, evaporates like ether, is capable of standing the test as an instrument for the exchange of potatoes, newspapers, iron and ether.”

The Miracle of Wōrgl

After decades of attracting loyal followers, during the 1930’s Great Depression, Silvio Gesell’s ideas were put into practice.  In the small town of Wōrgl, Austria 1932 the Mayor put aside 20,000 schillings and used them as backing for notes called Work Certificates. They paid their employees partly in Work Certificates. Each note had 12 spaces on the back and a stamp had to be stuck on every month to validate the note. To avoid paying for the stamp people spent the Work Certificates quickly. Locals paid their taxes early to avoid the penalty. The city paved roads, built a bridge, a reservoir and a ski jump. Unemployment declined dramatically in the area – in stark contrast to the ongoing unemployment in the rest of the country. The currency was so successful that people came from miles around to witness what they called “the Miracle of Wōrgl”. But within 15 months, after pressure from commercial banks, the government made it illegal and Wōrgl went back to unemployment.

Of course nowadays  we don’t need actual notes. Paying in local vouchers can be done electronically and this would probably require the Eftpos terminals to accept two different currencies, one local and one national. I’m sure this challenge can be met. And in these extraordinary times Government must contemplate changing the laws to make these local rates vouchers legal tender. Otherwise any venture would be short lived. They will be victims of the same bank tactics as in 1933 Austria. We must learn from history.

Safeguards needed

Of course built into the legislation there must be a provision to control for inflation. The Reserve Bank has very limited ways of controlling the money supply these days. They can keep interest rates down to stimulate lending from commercial banks and force banks in other small ways. Fortunately with rates vouchers there are two methods of controlling inflation. One is to limit the number of vouchers spent on labour. Wōrgl found that after a very short while they had to withdraw about a third of their notes because they were circulating so fast they were causing prices to rise. The second is to adjust the rate of decay. Like your Flybuy points they drop off if you don’t use them. This rate is not just -1%  a year. Wōrgl started off with a -12% rate, which was obviously too strong. So there will have to be  local currency control committees everywhere for this job, perhaps elected.

This would save councils, ratepayers, businesses, and customers precious national dollars. It would provide councils additional funding for necessary local  projects, and be especially useful for paying labour. When our very health is at risk Government can’t go on watching Councils suffer. Nobody wants libraries or pools to close or sewage to flow down the rivers. Nobody wants decaying infrastructure or broken roads.

The second safeguard is this. The late Jeanette Fitzsimons, when asked her opinion on this currency, said she would worry that the last trees would be cut down, the fish would all disappear and all the  rivers would be dammed. So it will throw up the urgent need for strong and effective resource taxes to prevent this.

“Buy local” on steroids

Public discussion so far has largely focussed largely on the huge Quantitative Easing programme of the Reserve Bank  to buy Government bonds to stimulate the economy.  Yes we need more money in the economy. But the velocity of circulation has been a neglected factor in kickstarting the economy. This can be achieved by having a well designed new currency working alongside the national currency. When vouchers have a circulation incentive they itch in your mobile phone, asking to be spent. The voucher’s design changes the consumer’s mindset. It is a spending currency. The national currency is our saving currency and is used for buying imports like petrol, machinery, spices, coffee and cars.

A voucher designed this way would stimulate the community economy like nothing else. Here is how it might circulate within the local economy. A clerk at the Council receives rates vouchers as part of her pay. She spends some of them at the dressmaker who spends it at the wine shop. The wine shop owner spends it on fruit trees at the garden centre. That owner spends some of it at the dairy. The dairy couple, who have accumulated a lot of vouchers that week, decide to pay their rates in rates vouchers early before the penalty happens.

If we want now to implement the “buy local” mantra and have thriving local economies, we have to learn from experiences in the Great Depression and step out boldly. Given the appropriate safeguards the Reserve Bank could well agree with the idea. If the Reserve Bank was happy, the politicians would hastily amend the various laws to lift us out of this awful economic crisis.

Deirdre Kent is the author of Healthy Money Healthy Planet – Developing Sustainability through New Money Systems, 2005 and The Big Shift – Redesigning Money, Tax, Welfare and Governance for the Next Economic System, 2017. She lives in Waikanae. She is involved in the Living Economies Educational Trust.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Meat and aviation industries use cute ways to measure emissions

When it comes to telling the public about their emissions, the aviation industry keeps telling us how much their efficiency has improved. That is they can fly further on a certain amount of fuel. But what they don’t tell us is that their capacity keeps increasing so much that overall their emissions increase. The planes are bigger, they have more routes and there are more planes flying.

The meat and dairy industries have been doing this too. When the scientists at FAO calculated the emissions from the livestock industry in 2006 and found them to be 18% of total global emissions, the industries didn’t take it lying down. Here is a piece from the GRAIN website (GRAIN is an international organisation of small farmers)

“The FAO was blasted by the meat industry after it released a report in 2006 putting livestock’s share of global GHG emissions at 18 per cent. “You wouldn’t believe how much we were attacked”, said Samuel Jutzi, director of the animal production and health division of the FAO.[22] The FAO soon buckled under the pressure and agreed to establish a partnership with the meat industry’s main lobby groups to jointly reassess emissions from livestock.[23] Both the partnership’s Steering Committee and its Technical Advisory Groups are dominated by representatives of meat companies, their lobby groups and scientists funded by meat and dairy companies.

As a result of the FAO’s partnership with industry, it has shifted its focus towards a narrow assessment of “emissions intensity”, in which GHG emissions are examined per unit of output (per kg of meat, litre of milk or unit of protein). Measured this way, animals that are intensively raised for maximum output of meat and milk—by a few million farmers mostly in the US, Europe, Brazil, New Zealand and a few other rich countries—have a lower “emissions intensity” than the animals of poor farmers, which are raised for many more uses and without access to the high protein feed, antibiotics, growth promoters and hormones used by intensive livestock industries. Poor farmers are thus said to suffer from an “emissions intensity gap” and should be pushed into what is termed “sustainable intensification” or, more broadly, “climate smart agriculture”.[24]

So like the aviation industry, for “emissions intensity” read “efficiency”. More efficient but more capacity for doing it!

Unfortunately the difference is that the meat and dairy industries have persuaded the FAO to do this too so we all get figures that are skewed and only a small proportion of the population is even aware that meat and dairy contribute to emissions, particularly big meat and big dairy.

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New Zealanders eat 94.6kg of meat per capita according to Beef and Lamb NZ

On this topic there is nothing better than referring to Beef and Lamb New Zealand website itself from which I quote:-

How much red meat are Kiwis currently eating? Based on working estimates, New Zealanders currently eat (carcass weight equivalent) about: 17.2kg beef, 5kg lamb and 0.7kg mutton per capita. In addition, 23.9kg pork and 47.8kg chicken per capita (2017-18 BLNZ Ltd Economic Service) resulting in a total red meat intake 46.8kg (beef + lamb/mutton + pork)

In the last 10 years to 2017-18, per capita figures have changed:

  • Beef down 38%
  • Lamb down 45%
  • Mutton down 72%
  • Overall reduction of beef/lamb/mutton = 42%
  • Pork up 15%
  • Poultry up 40%
  • Overall reduction all meats = 0%

I find this interesting that even though we reduce our red meat, we are so obsessed with getting our protein from animals that we increase pork and poultry (note they don’t mention fish).

I also find interesting the fact that they have classified pork as red meat, which I don’t think is the public perception. I may be wrong.

So we each eat 46.8kg from red meat and 47.8 kg from chicken or 94.6kg meat.

I am not sure this tallies with the world figures quoted for our country. And all this without dairy consumption to add to our animal protein.

Clearly someone is eating my share!

 

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What if New Zealand farmers grew less meat and dairy for the climate’s sake?

In New Zealand we all know that agricultural emissions are the second biggest sector at 48%. We have a big beef and dairy sector, the latter having expanded into dry regions once irrigation became available. These areas are entirely unsuitable for dairy conversions.

Since the New Zealand government announced in October 2019 that it would not include farm emissions in the Emissions Trading Scheme just yet, I have been wondering how farmers will adapt during this initial trial period. The scheme aims to cut emissions by charging companies a price for each unit of greenhouse gas produced and farmers will be exempt till 2025 while they adapt. Under the scheme, farmers would be responsible for collecting data, reporting it, and paying directly for emissions. If the government doesn’t think they are moving fast enough they will legislate earlier.

People seem to think it is just their farm practices that will have to change. So is it just their farm practices or is it something else as well?

It’s not just about adopting good water management practices. Emissions come from burps.

In a significant study by a 37 experts-strong EAT-Lancet commission called Food in the Anthropocene, published in The Lancet in January 2019, there is this astounding statement:  “We estimated that changes in food production practices could reduce agricultural greenhouse-gas emissions in 2050 by about 10%, whereas increased consumption of plant-based diets could reduce emissions by up to 80%.” Well, it looks like experts from our agricultural colleges might quibble with that factor, but nonetheless the potential is huge. Even the 11,000 scientists who recently declared a climate emergency wanted us to eat less meat and dairy.

So while we may be the first country in the world to include agriculture in our emissions pricing scheme, the future is in the hands of farmers. The government wants methane emissions down 10% by 2025.

And of course it’s not just methane emissions that have to come down. According to Professor James Renwick (email 2 Nov 2019) “The key thing to do is limit CO2 concentrations as they decide the long-term change in climate. How important methane reductions are depends on what’s happening with CO2 concentrations.
Reducing methane emissions will buy us decreases in methane concentrations over just a few years, but it’s pretty much wasted effort if we continue to let CO2 continue to build up.”
Feed lots in New Zealand are becoming more common

The main agricultural greenhouse gases (GHG) are methane and nitrous oxide. Methane is produced in the rumen of the cows by certain microbes and are naturally present in all ruminant animals. … Nitrous Oxide (N2O) is emitted from soil when urine, faeces and fertilisers are broken down by microbes in the soil.

The EAT-Lancet study, which had 357 references at the end, and was done by an international team of experts from health, agriculture, climate change and politics, puts methane as 56 times as powerful a greenhouse-gas as carbon dioxide over a 20 year period and nitrous oxide as 280 times as powerful. (It also recommended that protein be just 10% of the daily calories)

It’s fairly horrifying to find that over a period of 55 years (1961-2016) there has been a worldwide 89% increase in agricultural emissions (not CO2). That is methane and nitrous oxide mostly. But on that same climatewatchdata site, we have agricultural emissions being only 11.5% of total emissions. That, of all estimates, is the lowest, the highest being from the consultants that Worldwatch commissioned in 2009, at 51%. The FAO in 2006 estimated 18% and revised that down later to 14%. Goodland, one of the Worldwatch Institute’s consultants noted that by then FAO had ‘partnered with international meat, dairy and egg organisations so was no longer objective.’

Wise Response, an environmental organisation comprised mainly of academics, said in their submission on agricultural emissions, “While CO2 is the dominant greenhouse gas, keeping global warming less than 2°C or 1.5°C clearly requires control of all greenhouse gases and in particular of methane (CH4) that is the second most significant. As noted in a recent and very detailed comparison of different pathways consistent with the 1.5°C target, “early mitigation of CH4 emissions would significantly increase the feasibility of stabilising global warming below 1.5 °C, alongside having co-benefits for human and ecosystem health”.

They also state that because of New Zealand’s knowledge from agricultural universities to date, “In terms of dairy emissions reduction, anything up to 24% can be done without any drop in farm profitability (i.e. zero marginal cost of abatement). ”

The good thing about this is this. The Interim Climate Change Committee said, “Innovation in the agricultural sector has reduced its emissions intensity (emissions per unit product) by about 20% over the last 25 years. But overall agricultural emissions have increased 13.5% since 1990. The improvements farmers have made have helped keep agricultural emissions relatively stable since 2012”

While Wise Response referred briefly to the benefits of eating less meat and dairy, the sad thing is that as the Western world reduces its meat intake, the developing world is increasing. And that means China and India. Our exports are going increasingly to China and in fact China is New Zealand’s top market for red meat now. It’s just no good for global emissions for a few developed countries to reduce meat and dairy products because they have heard the health message and the environment message. China and all the other developing countries  must stop their demand for animal products.

And that is something we can’t control. If we grew less beef and dairy, what would we replace our exports with? A tiny movement is detectable I believe which is reported on by Country Calendar on TVOne and by Country Life from RNZ of farmers experimenting with growing pumpkin seeds and hazelnuts as well.

 

 

 

 

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Time to halt privatisation of high country

Although about a fifth of the South Island high country is owned by Government and leased out to runholders, this is changing. Since 1992 the Government has allowed the privatisation of leasehold land. Called “tenure review” it involves an unusual deal and the government loses. The runholders because of their input into the farm claim the improvements belong to them. They end up getting part of the farm for a song. No I am wrong – they sometimes make money on the deal by a strange mechanism. And then they flip it on, making millions in the process. The less valuable land is kept for conservation. There is something strange about the land valuation process.

So why on earth does the public purse lose? To retire the pastoral rights, the Crown paid runholders $36 million (or $656/hectare). That is ridiculous. It is all explained by Dr Brower in April 2107 here and the Environment Court at that stage made a case for stopping freeholding of land in the McKenzie Basin.

The picture above from Stuff shows this week’s protest by Greenpeace about a farm near Twizel where the farmer wants to run 15,000 cows. Many local farmers and even Fonterra joined Greenpeace in opposing this dairy conversion.

All the figures and stories are given in her post and she ends by saying “The best, easiest, and cheapest thing New Zealand could do for the land and water of the South Island is to stop high country tenure review. Better late than never.”

As Charlie Mitchell from Stuff points out, the best land stays in pastoral use and the deal is skewed towards the wrong side. “You might assume that ownership rights to valuable land would be worth more than occupation rights to less valuable land. But the Crown believes the opposite, so it has purposely lost money through these deals.”

More recently we saw the headline “Flipped. From zero to $17.5 million.” This involved a lakeside property on Lake Hawea. Previously under tenure review the farmer had been paid $2.2 million by the crown and had paid nothing in return. Then he onsold it for $17.5million. Flipped from zero to $17.5 million by Charlie Mitchell. An earlier article is one on McKenzie country

Of course after privatisation the owner can subdivide so by April 2017 what used to be about 120 leaseholds is nearly 4000 parcels of freehold land.

The Minister of Lands Hon Eugenie Sage has her work cut out to change this situation.

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Economic reality strikes – growth is ending

Of late the Opposition has been pointing out that business confidence is declining. NZIER had released a survey saying business confidence is at a seven year low. The Government has been quick to dismiss it as a political bias by business – as something they always opine when a Labour Government comes in. And the Asian stockmarkets are currently looking wobbly. RNZ’s long term economic commentator Patrick O’Meara talked of softer demands, slower growth, lower investment intentions. He talked of the looming US-China trade war has attributed that to the fact that on Saturday Trump’s tariffs on Chinese goods begin. It may also affect markets in Europe, Canada and Mexico.

The trend started well before Trump appeared.
But because of declining net energy, worrying trends happened decades before Trump’s tariffs kicked in. Let me explain declining net energy. Whereas in the mid 20th century if you spent one unit of energy to extract oil, you would get 100 units of energy back, nowadays because it takes more energy to extract fossil fuels from deep sea wells and from fracking, the energy left for the economy is progressively declining. Since net energy available is closely correlated with economic growth we would expect economic growth to decline. Moreover productivity will decline. Productivity is an economic measure of output per unit of input and input includes energy.

Is it time for Nafeez Ahmed to be taken seriously?

British investigative journalist Nafeez Ahmed has written a great article explaining the gradual decline of both economic growth and productivity in the UK economy. He concludes, “In other words, trying to keep the growth machine growing when the machine itself is running out of steam is precisely the problem — the challenge is to move into a new economic model entirely.”

He quotes from a piece of research for the government by Professor Tim Jackson giving graphs of declining economic growth and productivity. Jackson says, “In 1996, the trend rate of growth in the global GDP was 5.5%. By 2016 it was little more than 2.5%”. From 1971-2016 productivity growth dropped from over 3% to just 1%.  We must have similar graphs in New Zealand.

Economist Michael Reddell says on his website “Over the last five years there has been only about 1.5 per cent productivity growth in total.”

Ahmed himself is well ahead of others in the way he puts together and explains the connection between many serious global issues –fossil fuel depletion, climate change, finance, geopolitics, terrorism, food security, political instability.

Trump is just a symptom

Trump’ regime is picked to promote business as usual
Ahmed wrote on Inauguration Day 2017  that “Trump is not the problem. Trump is merely one symptom of a deeper systemic crisis. His emergence signals a fundamental and accelerating shift within a global geopolitical and domestic American political order which is breaking down.” He talked of the elephant in the room being the global net energy decline that drives all this.

Less than a month later he penned  a chilling analysis of Trump’s regime.   Half of them are now gone, having resigned or been fired by Trump.  He grouped them under five headings – money monsters, fossil fuel freaks, black ops brigade, Ku Klux Klan and the guru gang  – saying that was the perfect combination required to keep the old model working. Business as Usual must proceed. Drill baby drill.  Increase funding for the military. If things look bad financially try riskier and riskier financial instruments.

Never before has there been such an environmental crisis where our emissions are making our habitat more and more inhospitable with floods, fires, droughts and the accompanying food insecurity. Never before have we seen governments like ours desperate to solve child poverty throwing money at them. We have even got a superannuitants winter energy payment. Yet homelessness and poverty continue.

The tragedy is that while the current government has its heart in the right place – to end poverty and preserve our environment – it is hamstrung. It is damned if it does and damned if it doesn’t. Political instability is becoming inevitable. Will New Zealanders after the hope of Jacinda Ardern be doomed to see in a Trump like government within five years? Nigel Farage is coming to our country soon. If we don’t find a new economic model that is not dependent on growth, we will come nowhere near a just, sustainable economy. That is the tragedy.

 

 

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Interview on the Big Shift

Half hour interview with Karl Fitzgerald of Prosper Australia on the Big Shift. https://www.mixcloud.com/RenegadeEconomists/

I was surprised when I played it today how animated I sounded. Now I need to finish promoting this book and get on with writing the next one, probably entitled Emergency with a subtitle about the need to have a climate currency and how it could be applied.

The notes are on Karl’s site

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The price of petrol and climate action

Climate change groups were noticeably absent from the recent public discussion about the rising price of petrol. Nobody was saying publicly that if we are to turn emissions around, we have to make it more expensive to drive. Not the Greens, not Generation Zero or 350.0rg. Nobody. It had been a unanimous outcry of pain against high petrol prices. Why? Surely lower petrol prices would clog up our roads, get people off public transport and adversely impact our emissions?

Here was a discussion about how the margins had increased in Wellington and the South Island yet nobody had said we should drive less so use petrol and reduce our carbon footprint. Nobody came out with a comment that the oil companies have a growing debt burden because it is getting more and more uneconomic to get oil out of the ground, so it is not surprising. They have been binging on debt and are struggling to pay dividends and find new barrels. The big four doubled their net debt between 2014-2016.

The public debate was started by Judith Collins the Minister of Energy and Resources after a report came out, and Labour’s Stuart Nash praised her for ordering the report. Labour’s Stuart Nash praised her for ordering the report.

So how important is petrol to us? The average Kiwi family spends $42.30 a week on petrol – only $8 less than their average weekly spend on meat, fruit and veggies. That is mighty close. It won’t take much for petrol to be a bigger part of the budget than food. And to complicate it, when petrol costs rise food costs mostly get passed on to us.

But then I thought of the implications. The gross profit margin on fuel at the pump had doubled to about 30 cents a litre in Wellington and the South Island over the past four years and gone up by 5c a litre elsewhere. It has something to do with Gull only selling petrol north of Levin, but it is more than that.

The petrol retailers Z Energy, BP, Mobil, Caltex and Gull all defended their positions. Maybe the companies are suffering from their growing debt burden so increasing their margins are the only way to stay solvent.

Ten years ago when many environmentalists were involved with peak oil we would argue that the price of oil will one day be over $100 a barrel. It hasn’t turned out that way because we didn’t factor in debt or falling interest rates. As actuary Gail Tverberg says, the economy was far more complex than the original model assumes. “When interest rates fall, this tends to allow oil prices to rise, and thus allows increased production. This postpones the Peak Oil crisis, but makes the ultimate crisis worse.”

We all remember that the economy slowed right down when the price of oil spiked in 2008. That showed us how critical the price of oil is. High prices on energy products ripple through the economy is many different ways. Just thinking about the price of petrol gives a misleading impression. Tverberg says, “Because interest rates, debt, wages, and oil prices (and, in fact, commodity prices of all kinds) are linked, the system is much more complex than what most early modellers assumed was the case.”

Not all of us can get a handle on the huge complexity of it all and I am no exception. But I know Tverberg believes the price of oil will not rise beyond about $50 a barrel because consumers can’t afford it.

Environmental commentators are faced with several problems. First they are unlikely to have an understanding of the complexity of the peak oil problem and secondly because they know that saying petrol prices should rise (through increased taxes) will be unpopular. The petrol price components vary.

What should happen of course for climate change purposes is for the Government to increase taxes on petrol, diesel etc. The fact that the oil companies have been the villain has excused the government for inaction. Now we can cry together that the oil companies are a greedy, conniving cartel. I am not sure that does much to reverse climate change trends.

Back in 2015 the IMF issued a warning that permanently low fossil fuels are choking off investment in renewable sources of energy and hindering the fight against climate change. A year later after a big study, the World Bank chimed in.

 

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