Meet Lara Merling, a Young Scholar in Washington, DC

Every so often, we highlight one of the members of the YSI community. We share their story, their aspirations, and what new economic thinking means to them. This time, we cover Lara Merling, alumna of the Levy Economics Institute, co-founder of Economic Questions, and currently, Economic Research Officer at the International Trade Union Confederation (ITUC) in Washington, DC. This spring, Lara is helping members of YSI come together in DC to host various workshops.

How did you wind up in economics?

Pavlina Tcherneva’s class on Money and Banking converted many students to economics, myself included. It made me realize how economics and particularly economic policy defines so much of our lives. And as I advanced, I realized the issues in the discipline itself. All economics is political, but the models in our textbooks manage to hide their assumptions, and present themselves as objective science. In my masters degree, I studied not just the neoclassical models, but also their critiques, and many alternative ideas and approaches. I was able to do research that shows the failures of neoclassical economics, along with the real human costs that it’s policies (such as austerity) bring about.

How is it to work at the intersection of research and policy making in DC?

As an Economic Research Officer in the Washington office of the ITUC, which represents over 200 million workers globally, I draw on the insights from my research to advocate at the IMF and World Bank for better and fairer policies for working people everywhere. 

That said, it’s not without difficulty. Policy makers tend to uphold economics as a precise and objective science. In reality, there are politics behind every economic model, and we should not pretend otherwise. One may expect that policy makers are in a good position to understand that, but there is still a widespread tendency to stick with the most widespread models, label them as “sound economics” and use them to justify a political agenda; tricky business when people’s lives depend on it.

Furthermore, when it comes to translating research into policy, much of the caution expressed by academics around the certainty of their conclusions is lost when policymakers give in to the temptation to cherry-pick findings, and emphasize those that support their agenda. This way, nuanced findings with various limitations can quickly turn into something that appears to be a solid fact. 

To make matters worse, institutions such as the IMF and World Bank continue to glorify neoclassical economists, despite their poor track record in terms of predicting real world events, and helping countries actually develop. But much of my professors, who for decades have been marginalized by these institutions, have persisted in their work and seen their predictions proven right. They have stood strong, and continue to put their energy towards an economics that works for society, not against it. And I can draw upon them for inspiration when things feel like an uphill battle.

What are your hopes and dreams?

I am working not just to further develop my perspectives on the policy failures of neoclassical economics, but also to contribute to alternative frameworks that can address the big challenges of our time. One of the approaches I focus on in my work is that of prioritizing full employment and sustainable growth. Making these explicit goals changes the game for economic policy making. They provide a lens through which to explore new solutions to the challenges of our time.

My hope is for a world in which all economists learn about and engage with a variety of schools of thought, and have to argue their positions based on evidence and logical arguments, rather than theories taken for granted. We should all be aware of the history of economics and understand the institutions that we encounter in the real world.

Contact Lara Merling via the Young Scholars Directory.

Speed Dating for Academics

Most academic conferences involve 20-minute paper presentations, followed by a 10-minute Q&A. For a small workshop of 10 presenters, that’s 5 hours of presentation time. Of which every person there spends 90% listening. And checking their email. And their Twitter.

We’re all used to it. And attached to it, because it’s easy. We can use the PowerPoint from last time! Just a couple edits from the airplane, and voila.

But we forget the reason we got on that airplane in the first place: to meet other people in our field. Because we really need to find a collaborator for our next paper, or a mentor to offer some guidance for the last phase of our PhD, or a friend to help edit our language before our work goes to peer review.

And now we’re stuck trying to meet those people during a 10 minute break, while juggling a coffee in one hand and a granola bar in the other. Those are crucial after 4.5 hours of listening…

There is a way to improve on this without increasing everyone’s preparation time. Next time you’re in charge, consider the following. Instead of having every person present to the group, have every person present to every person. It’s called academic speed dating. 


Here’s how academic speed dating works:

The group seats themselves around a table, with each person facing another, like so:


O O O O O Side A
_____________________
O O O O O Side B

To begin, everyone on Side A tells the person they sit across from about their research and interests. For four minutes, just like they may tell an acquaintance. No formulas, no PowerPoints.

Once the four minutes are up, everyone on Side B talks about their work and interests, in much the same way. 

Then, each pair spends four minutes brainstorming where their areas of interest may overlap and if their work and expertise may offer insight to the other, taking notes as needed to hold on to good ideas.

Next, everyone moves one seat to the right, putting them in front of a new person to repeat the exercise. With a group of ten, it only takes 2 hours to complete the full cycle. After that, everyone has a rapport with everyone, and any obvious “matches” in interests should have become clear.

The exercise is best followed by a sizable break, allowing anyone to continue conversation with potential matches in a more organic, casual way.

There are many variations, or add-ons, of course. The exercise could be combined with a short training on how to present one’s research succinctly and effectively in just a few minutes; the elevator pitch! Facilitators may prove tips on this first, and allow participants to write down key items their pitch should include. This way, academic speed dating may double as an opportunity to try out freshly written pitches and tweak them as needed.


At the Young Scholars Initiative, Peter Bent first introduced this exercise, and continues to lead the Advisory Team for Innovative Academic Formats. We can’t thank him enough for making our community more engaging. 


Currency manipulation accusation against China not just “wrong now”, but fundamentally flawed

By Alexander Beunder. Investigative journalist. Platform Authentieke Journalistiek, the Netherlands.    

Now that the dust has settled around the latest U.S.-China trade war spat, here’s something the Trump regime may want to evaluate before the next round: the fact that many economists and analysts refused to side with Trump and Mnuchin when they accused China of “currency manipulation”.

Initially, the story of Chinese currency manipulation was echoed around the world, when the Chinese yuan dropped 1,4% to the dollar on Monday, August 5. After US president Donald Trump responded by tweet that China was guilty of “currency manipulation”, the Wall Street Journal and others described how Beijing was “weaponizing the yuan”. China was obviously responding, some analysts said, to new import tariffs on Chinese products which Trump had announced a week before. The press paid even more attention to the story because of the diplomatic drama around it, as US Treasury secretary Steven Mnuchin rushed to officially declare China a “Currency Manipulator” and said to bring the matter to the International Monetary Fund (IMF).

It’s an accusation Trump (but before him, Obama) has been repeating for years. China’s central bank is supposedly keeping the value of the yuan to the dollar artificially low – by buying and holding on to dollar reserves – to make its exports cheap for the rest of the world. This creates an “unfair competitive advantage”, in the words of Mnuchin. Thanks to its cunning currency manipulation scheme, the argument goes, China enjoys a persistent trade surplus – exporting more than importing – while the U.S. suffers a trade deficit, hurting businesses and workers.

But fact-checking Trump’s statements has become a healthy habit among journalists. Several analyses quoted economists who disagreed with the latest accusations by Trump and Mnuchin. As The New York Times business correspondent Alexandra Stevenson noted, “many economists believe [China’s] currency should be weakening versus the dollar”, due to slow growth and the trade war with the U.S.. Another source, U.S.-economist Dean Baker, noted the 1,4% drop was large but “not that unusual” and can happen “without government intervention”. Even the annual review of China’s economic policies by the IMF, released after Monday’s accusations, concluded there is no sign of currency manipulation.

Still, several established correspondents agreed that the accusation was valid in the past. “China kept its currency weak a decade ago”, Stevenson wrote, but the yuan has now “strengthened to a level widely believed to be close to fair value”. Her colleague Eduardo Porter at The New York Times shared a similar view in an article which headlined, “Trump Isn’t Wrong on China Currency Manipulation, Just Late”. Bloomberg correspondent Noah Smith drew the same conclusion, noting China enjoyed a large trade surplus in the 2000s, but the “the country’s current account deficit has largely vanished”, after a peak in 2007.

 


Flawed economics

However, there may be something more fundamentally wrong with the currency manipulation accusation, and not just with the recent application of it by Trump and Mnuchin.

New York-based economist Anwar Shaikh and London-based economist Isabella Weber have been arguing for several years that the whole currency manipulation argument is based on flawed economics. Shaikh, an economics professor at the New School of Social Research in New York, and Weber, a lecturer in economics at Goldsmiths, University of London, published a working paper on the topic last year titled “Debunking the Currency Manipulation Argument”.

If they’re right, even the belief that China was guilty of currency manipulation a decade ago becomes questionable.

To understand what’s wrong with the currency manipulation argument we have to go back to the underlying trade theories, Shaikh and Weber explain. As currency manipulation can not be observed directly, economists look at other economic phenomena which, according to standard trade theory, are indicators of currency manipulation. A persistent trade surplus is the most important indicator because, according to standard trade theory, free trade would automatically eliminate trade imbalances. Hence, wherever a persistent trade surplus exists, it must be the result of currency manipulation, the argument goes.

The Chinese trade surplus, always positive since 1994, has been the central pillar of the currency manipulation argument, Shaikh and Weber note. Not just for academic economists; the U.S. Treasury uses persistent trade surpluses as official, legal criteria to determine whether a country is guilty of currency manipulation to gain an “unfair competitive advantage”.

But the proof is in the pudding, in this case, standard economic trade theory. If the theory is incorrect – which it is, according to Shaikh and Weber – the whole narrative collapses.

What’s wrong with the trade theory? The theory goes back to a famous model of the British economist David Ricardo (1772-1823), Shaikh and Weber explain. In Ricardo’s model and modernized versions of it, free trade ensures that, over time, no trading partner would enjoy a trade surplus or suffer a trade deficit. Imagine a country which would initially be more competitive in, let’s say, all sectors. Free trade would result in high exports and low imports (a trade surplus) attracting a massive inflow of money from foreign buyers. Such an inflow of money creates domestic inflation or an increase in the exchange rate, damaging competitiveness and eliminating the trade surplus. In a weaker, deficit country the opposite would happen: an outflow of money creates domestic deflation or a drop in the exchange rate, boosting competitiveness and exports and eliminating the trade deficit.

But the theory is fundamentally wrong, Shaikh and Weber argue. The “natural” result of a world in which trading partners enjoy different levels of competitiveness is not balanced trade. The “natural” result of free trade in such a world, they argue, is imbalance – trading partners with persistent trade surpluses and deficits.

Relying on classical economists like Adam Smith (1723 – 1790) and Roy Harrod (1900 – 1978), Shaikh and Weber present their alternative trade theory: in their version, the magical price or exchange-rate movements which would equilibrate trade in Ricardian models won’t happen. For instance, in a surplus country, large inflows of money due to excessive exports will not create domestic inflation or a rise in the exchange rate, because there’s something else that these flows of money do: move back to where they came from. Any oversupply of money a surplus country would receive would initially be saved in local banks and decrease the domestic interest rate. This would push capital towards other countries where it enjoys higher returns – indeed, to the deficit countries where the interest rate has increased due to an outflow of money.

Hence, a likely outcome of free trade is that surplus countries become creditors, and deficit countries become borrowers, and there are no automatic price or exchange-rate movements which would balance trade accounts.

This is, Shaikh and Weber note, an accurate description of the financial relation between the US and China, as China has become the largest creditor of the US. The only peculiarity, they explain, is that China’s public central bank is doing the lending (buying dollar assets) because Chinese capital controls prevent private investors from fulfilling this role. But these operations “might only mimic what would be the outcome of free capital and trade flows”, Shaikh and Weber explain. To label these monetary operations as the main instrument of a cunning currency manipulation scheme, as Mnuchin and others do, is unwarranted in their view.

So, if Shaikh and Weber are right, global imbalances in trade are simply natural outcomes of the free market, not of government interference. And if that’s the case, the currency manipulation arguments holds no water, as “we cannot infer from trade imbalances and from China’s purchase of reserves that the currency has been manipulated”.

No, Shaikh and Weber can’t exclude the possibility that China has intervened in the value of the yuan for purposes of competitiveness. Their main point is that the conventional criteria used by academics and the US Treasury to determine this – trade surpluses and deficits – tell us very little.

Perhaps more importantly, their message is to look at free trade itself to understand the roots of the trade deficit of the US and trade surplus of China. The real reason is surprisingly simple: “It is the lower costs in China that drive its trade surplus”, Shaikh and Weber conclude. It’s not Chinese currency manipulation which, as Trump complained in 2015, “makes it impossible for our companies to compete”. It’s simply Chinese competitiveness. It’s an argument which may be harder to swallow for those convinced of the everlasting power and competitiveness of the US economy.

 

Politics, not economic science

 However convincing their debunking of the economic evidence may be, Shaikh and Weber are well aware that in the political arena the economic evidence plays a secondary role. U.S. presidents like Trump repeat the accusation of currency manipulation because of politics, not economic science, they note.

It’s been a “general pattern” in US foreign policy for some time, Shaikh and Weber write, to accuse trading partners of currency manipulation when they are running a trade surplus with the US, typically followed by the “demand that they enter into bilateral negotiations on a wide array of market liberalization policies”. Booming economies like Korea, Taiwan, Hongkong and Singapore faced the same accusation of currency manipulation in the late eighties and nineties, Shaikh and Weber note. China has repeatedly been accused of currency manipulation by the US Treasury since the nineties, Weber adds by email, with increased intensity “since the rapid expansion of the US-China trade imbalance following China’s accession to the WTO in 2001”.

So the return of the currency manipulation argument today, at a time when the US and China are fighting over the terms of a new trade treaty, is not surprising. But it is alarming, Weber says, as the unfounded accusation “is another step towards escalating the trade war”.

 

This article was also published by Rethinking Economics.

New Economic Thinking in the Context of Climate Change

Climate change is posing an increasing threat to life on earth. A few months back, we organized a special session at the INET YSI North America Convening to discuss how economics can serve society and help address climate change. We were honored for Kate Aronoff and Shouvik Chakraborty to moderate our debate. 

We are happy to share the contributions of the participants. Summary and introduction by Shouvik Chakraborty.

Economic Questions: Complex Economic Theories Explained in Simple Ways

Several exciting, valuable economic theories become difficult to comprehend by individuals who have not had the training in the discipline of economics. However, it is essential that those theories, and the powerful implications they have for the broader social goals, are brought to the attention of everyone in a manner which excites them for those causes. The panel on Economic Questions essentially does that – explaining complex economic theories in simple words!

The two most emerging issues in the current world economic order which have captured the imagination of young scholars are inequality and climate change.  The papers discussed in the panel on Economic Questions at the YSI North America Convening (Feb 22-24, 2019) dealt with both these crucial problems.

Kevin Cashman’s piece “There is no Alternative” to Managing the Economy, and the Climate’ argues the importance of industrial policy and economic planning and management to address these problems. He makes a strong case for global cooperation to tackle both these problems of inequality and climate change.

Johnny in his piece, “A Feminist Approach to Mitigating Climate Change” argues for more female participation in the discipline of economics and also in the policy circles, which he argued had a significant positive impact.

“Tackling urban homelessness in the US the Green Way,” a piece written by Atthulya Gopi, argues that the affordability crisis of housing market is forcing homelessness in the east and west coast of the United States, and also, thereby, contributing negatively to the environment.

Carlos Maciel’s piece, “The Green Job Guarantee – How to Tackle Climate Change and Unemployment,” proposes that a job guarantee program specifically linked to activities related to environmental sustainability will simultaneously achieve the goals of more jobs and attain sustainability.

Maximilian Seijo’s piece “Ecological Theory for a Green New Deal” argues for a cooperative reorganization of ecological relations through further centralization of legal authorities by strengthening the institutions of democracy.

 

 

 

 

Despite its new rhetoric, the IMF still promotes failed policies

An event titled Income Inequality Matters: How to Ensure Economic Growth Benefits the Many and Not the Few is not exactly what comes to mind when one thinks of the International Monetary Fund (IMF).

Yet, in April, at the latest Spring Meetings, managing director Christine Lagarde, along with the IMF’s chief economist, discussed the urgency of addressing rising income inequality and the need for redistributive policies. While IMF staff in Washington were expressing their concern with inequality, people in Ecuador, Argentina and Tunisia were taking to the streets to protest against anti-worker austerity policies their governments are implementing as part of the IMF programs.

In the 1980s and 1990s, when a series of debt crises plagued the developing world, the IMF lent money to those countries as part of what it called structural adjustment programs (SAPs). These programs, part of what is now referred to as the ‘Washington consensus’, aggressively promoted an agenda of liberalization, deregulation, and privatization, along with sharp cuts to social spending.

SAPs protected creditors and opened the doors for multinational corporations to do business in these countries, while the brunt cost of the adjustments was borne by people.

As the growth and development that was promised as a result of these programs never materialized, the IMF slowly lost some of its influence. The painful memories of the social costs that resulted from SAPs have made the IMF an extremely unpopular institution.

In recent years, the IMF has made substantial efforts to rebrand itself and create the image of an institution concerned with inclusive growth and social indicators. The IMF’s research department has dedicated a significant amount of time and space to the issue of rising inequality. This included research that showed that the fiscal consolidation and liberalization of capital accounts – policies that are at the core of IMF programs – increase income inequality.

The Fund has also examined the effect of the labor market policies it promotes and their contribution to the decline in the share of income captured by labour.

Yet, while its research department tackled questions on how to pursue both growth and inclusion, the Fund’s loan programs have not incorporated these concerns.

In the aftermath of the financial crisis in 2008, the IMF re-emerged as a major player on the global scene. The IMF stopped using the name SAP, but the structure of IMF loan conditions and the policy demands remained very similar, with the failure of previous programs all but forgotten.

To make matters worse, the IMF continues a trend of underestimating the depth of recessions caused by the austerity policies it promotes, which prolongs economic crises and increases debt burdens as economies shrink.

The IMF’s latest loan agreement with Ecuador has the typical features of a structural adjustment program. It demands massive cuts in government spending, which directly target public sector employees, along with a series of neoliberal institutional reforms.

The program continues to impose failed policies that are shown by the IMF’s own research department to increase inequality and have high social costs.

To go along with the IMF’s new image, the program does include a floor on social spending, along with a modest increase in spending on social assistance for the first year. However, the spending floor, which establishes a minimum amount of the budget to be allocated towards social assistance programs is set at a low level, which is unlikely to keep up with the increased needs that will arise from Ecuador’s recession.

The case of Argentina, which entered an agreement with the IMF in the summer of 2018, has already shown the inadequacy of social spending floors. As the economic crisis has continued to worsen throughout the program, poverty in Argentina has skyrocketed, increasing from 25.7 percent in mid-2017, to 32 percent by the end of 2018, a staggering 6.3 percentage points.

Argentina also serves as an example of the failure of IMF austerity programs, where growth projections had to be adjusted downwards by over 3 percent for a single year only 3 months after the initial agreement was signed

An in-depth study of all IMF loans approved in 2016 and 2017 has shown that 23 out of a total of 26 programs imposed austerity measures. The number of conditions attached to loans also continues to increase. Furthermore, the study has shown the inadequacy of social spending floors, which do not provide enough funding, even for the provision of basic healthcare.

The IMF has changed its rhetoric on inequality and social inclusiveness, but its operations continue to impose the same harmful policies of the past. While some symbolic steps have been taken on how to operationalize research on inequality, they have yet to be incorporated into lending agreements.

If the IMF is truly concerned about growth that benefits ‘the many,’ it needs to stop promoting policies that have time and time again hurt working people.

 

This article originally appeared in Equal Times.

Green Jobs to Save The World

By now everyone has heard about the Green New Deal; from the Sunrise Movement protesting on Capitol Hill, to the many threads discussing it on social media, the “GND” is a policy the world is eager to talk about. However, it has not always been like this.  About two and a half years ago I wrote a piece trying to introduce the general public to the Job Guarantee (JG). Back then, the topic seemed restricted to the circles of lefty publications, Keynesian economists, and a handful of Economic Departments across the world. Now, however, the Job Guarantee has been catapulted into mainstream discourse, thanks to increased popular interest on the GND and MMT.

Nevertheless, even two years ago, there was some precautionary excitement about the Job Guarantee among some advocates of Keynesian spending and proponents of Modern Money Theory (MMT), who have been working on this concept for a long time. Their perspective is amicable to this idea because they are unafraid of a government deficit, and in favor of direct job creation. They understand that deficit-spending is not inherently bad and that the US government will never have to default on its debt. When the economy is not at full employment, increasing the deficit would actually be helpful, not harmful.

However, financial feasibility should not be the only concern when implementing the Job Guarantee. One of the most important dichotomies in Economics lies between growth and environmental sustainability. It is believed that economic growth is damaging to the planet but eco-friendly policies are bound to stun the economy. This, however, is not necessarily the case. It is possible to have both economic flourishing and care for the planet – if we implement a Green Job Guarantee. If we’re going to be at full employment, we have to do it in a way the planet can handle it.

A fiscal stimulus aimed at reducing unemployment is timely and necessary. Despite the confidence expressed by the Fed about the latest employment numbers, the situation for those who are jobless is not looking good. One of the reasons for the latest rate hike by the Fed was their positive outlook on unemployment numbers. Chairman Yellen had gone as far as saying that at 4.6% unemployment rate we were close to full employment and fiscal stimulus is not necessary to reach that goal. However, the US economy keeps adding thousands of jobs every month despite official unemployment dipping below 4%.

The low official joblessness rate hides the fact that an increasing number of Americans have left the labor force altogether. For example, there are currently over 5 million Americans who are not in the labor force but have reported that they want a job. This is where a Job Guarantee program could come in handy. In short, the government would act as an Employer of Last Resort, effectively guaranteeing a job to all of those willing and able to work.

The current structure of the economy relies too heavily on fossil fuels, wasteful production methods and non-renewable resources. Unless we change this, sustaining full-employment would result in increasing production, consumption, and waste. This reminds me of my favorite Keynes’ quote, “In the long run we are all dead.” If we’re talking about a long run of increasing pollution,  he would surely be right. As we know, too much of a good thing can be a bad thing. This applies to jobs too. Unless the jobs created are green jobs, too much employment will bring us to environmental destruction.

How do we do it?

The issue of the environmental sustainability of a Job Guarantee program has been on my mind since I first heard of the revolutionary employment policy. Mathew Forstater’s Green Jobs proposal has been inspirational to my work. In my Master’s thesis, I tweaked its existing framework to target environmentally sustainable outcomes. I find that we can transform the Job Guarantee program to ensure its sustainability without increasing its cost. Here’s how:

I set up the program in a way that promotes social enterprise and community development, following the work of Pavlina Tcherneva and colleagues. With the help of social entrepreneurs, NGOs, and Nonprofit Organizations, local communities should decide what projects will be undertaken. For example, communities along the Hudson River could support a program where workers dealt with invasive species such as the zebra mussel and water chestnut. Other localities could handle neighborhood farming, recycling centers, flood containment structures, bike paths, etc. It’s been found that if the community is involved in determining what projects are taken on, participation levels are higher.

A more detailed account of my proposal and calculations is available upon request, but this is the gist of it: I used an Input-Output model to establish what would be the cost of employing the official U-3 unemployed population into “green” Job Guarantee jobs. That framework accounts for indirect job creation related to the proposal, but not induced employment. What I find is that the US government can, under conservative assumptions, employ all of those who are officially unemployed for around 1.1% of GDP while paying them a $15hr wage. That is about 17% of the annual military budget. The Green Job Guarantee program is projected to cost just under 200 billion dollars per year in order to ensure employment for 7.8 million people.

As the world economy quickly transitions into a more sustainable state, a shift in the productive structure will occur, rendering some current occupations useless. Workers who are employed in areas like fossil fuel energy generation (the fabled coal workers of the American Midwest for example) will be left without a job and unlikely to find a new one right away. There is no way to predict how quickly this transition will occur: it could be a gradual–albeit fast–process if led by government initiative, a slower and insufficient movement if guided by profit motives, or even a sudden transition caused by a widespread popular response to natural disasters.

Given current trends, I don’t believe it’s too optimistic to think the transition to a renewable energy generation and a sustainable economy will occur before the fossil reserves are depleted. As such, fossil fuel workers (and those who depend on their consumption) are at risk of losing their jobs in the near future. A Job Guarantee program would allow those workers to not only find employment readily but also to acquire on-the-job skills that will allow them an easier transition into the Green economy.

As we continue to criticize and investigate the policy ideas being put out there, let’s look beyond the government deficit, and consider the planet too. Whether you’re afraid of government debt or not, you should be concerned with the destruction of the earth. If we are going to have a public program that aims at generating new jobs and bringing people back into the workforce, then that program should be a Job Guarantee. But, if we’re going to guarantee jobs, they will have to be green. And we have all the tools we need to make that happen.*

 

 

*Interested in some good work on how to build a sustainable economy? Check out the publications from PERI and the Binzagr Institute for Sustainable Prosperity. Interested in a non-profit that is already doing some great things in that area? Visit GreenWave‘s website and get involved!

 

“There is no alternative” to managing the economy and the climate

Embracing industrial policy and economic planning is essential to reducing greenhouse gas emissions and environmental damage, says Kevin Cashman.

Embracing industrial policy and economic planning is essential to reducing greenhouse gas emissions and environmental damage.

By Kevin Cashman

One of Margaret Thatcher’s often-used slogans was TINA, or “there is no alternative.” There is no alternative, she meant, to the neoliberalism that became dominant in the 1970s and 1980s. After a coup led to the demise of the Soviet Union in 1991, this idea led to even more smug declarations of victory for the neoliberal order as well as the popularization of Francis Fukuyama’s articulation of the “end of history.”  

With the countless failures of neoliberalism coming into focus for all sides of the political spectrum — one of those failures being climate change, which is already leading to potentially irreversible changes in ecological systems — it is worth considering different approaches to economics that could start to address these problems. These include some concepts, like industrial policy and economic planning, which have been summarily dismissed by powerful people in both major parties in the United States. In the context of a Green New Deal, these ideas provide valuable insights on what successful policy and outcomes would look like.

 

Industrial policy and economic planning

Industrial policy and economic planning and management are vital to reducing greenhouse gas emissions. Briefly, industrial policy is often thought of as policies that strategically supports certain industries, while economic planning involves government intervention in markets to various degrees. (Industrial policy is a type of economic planning.) Over the past 40 years, both concepts have been much maligned by Democrats and Republicans. Industrial policy is attacked as protectionism which spoils “free” trade, and economic planning is often tied to socialist and communist political and economic systems (and thus assumed to be implicitly harmful). Industrial policy is also often tied to economic planning as a way to discredit it.

The dirty secret in development is that the countries that have been most successful at raising living standards and growing their economies engage in planning that is outside what the neoliberal order considers acceptable. These include the Soviet Union, which oversaw vast improvements in living standards and transformed the country into a superpower, and China, which not only has the largest economy in the world today but has reduced poverty to a degree that can only be regarded as one of humanity’s most impressive achievements. The Soviet Union and China didn’t and don’t pretend to be guided by neoliberalism, but other countries, such as Japan and South Korea do. Their development was also characterized by industrial policy, “protectionism,” and currency management. Historically, countries like the United States and the United Kingdom, some of the most enthusiastic promoters of neoliberalism, are guilty of this as well. Simply put, government intervention in markets and industry is how the government can move the economy to solve large problems, like poverty, underdevelopment, and hopefully in the future, climate change.

 

Planning for the benefit of the rich

If these policies are so beneficial, why does neoliberalism eschew them? While this is perhaps an oversimplification, it’s because the interests that promote neoliberalism risk losing power and money from their adoption. The hollowing out of social welfare programs and the introduction of markets into various facets of life have led to the accrual of wealth and power for some, and those people, who might have been already rich or powerful to begin with, don’t want to lose those benefits. Neoliberalism also has different apparatuses that support it in academia, media, the state, and other institutions that give backing to its ideas. As an example, free trade in a vacuum might make sense, but “free” trade structured to benefit the rich does not. However, said apparatuses will continue to push the narrative that “free” trade is inevitable and unavoidable. Likewise, austerity — the idea the government should close budget deficits and reduce its debt — does not improve economies and makes very little sense, but it was the default policy prescription during the worst recession in 80 years, and it destroyed many lives.

That leads to another point: the United States and other countries committed to capitalism and neoliberalism actually practice industrial policy by enacting policies that largely benefit the rich. This protectionism can be found in many different parts of the economy. The supply of doctors, dentists, and lawyers is artificially restricted (thus raising wages), the Export–Import Bank subsidized large companies that had no need for subsidies, intellectual property rules allow rents to be extracted on drugs or software much longer than is necessary, the gains from government research and development are privatized, and the financial sector is largely waste — just to name a few examples.

 

Transportation and urbanism as examples of poor planning

Since economic planning in the United States is focused largely on extracting gains for the rich, it also means that there is inadequate planning around pressing problems, like climate change. The transportation sector illustrates these inefficiencies and coordination failures well.

The transportation sector is the largest or second-largest contributor of greenhouse gas emissions in the United States. Overwhelmingly, light-duty vehicles are responsible for most of these emissions — 60 percent — while Medium- and Heavy-Duty Trucks are 23 percent. Aircraft (9 percent), Rail (2 percent), Ships and Boats (2 percent), and everything else (4 percent) make up the rest.

In many cities in the United States, vehicles are the most common way to commute to work or get around. This is in large part due to poor and disjointed transportation policy and is also why light-duty vehicles contribute so much to emissions. Medium- and heavy-duty truck emissions are high as well (and rail, low) because trucks are the predominant way goods are transported across the country and within cities. A sensible climate policy to address this would 1) limit the emissions from vehicles and 2) shift to better ways of transporting people and goods.

Over the last thirty years, the United States has largely failed at both of these goals. Vehicle fuel efficiency has increased modestly via standards (after efficiency decreased in the 1990s), although these are undermined by states in various ways. Gasoline is by far the most common fuel, despite the availability of technology that could have supplanted it. Electric vehicles and gasoline/electric hybrid vehicles were developed and viable in the 1990s, but absent incentives to produce them or require their adoption were not produced in large numbers. Electric vehicles were clearly superior in terms of their environmental impact because they relied on electricity generation, which could be from clean sources. Instead, the United States spent significant time and money developing hydrogen, ethanol, and compressed natural gas vehicles, which had significant disadvantages (ethanol subsidies also had significant harmful effects abroad, raising the prices of food in poor countries, some of which had been encouraged to adopt trade policies that exposed themselves to this danger). This mirrors the United States’ slow recognition that wind and solar power represented the future of electricity generation, which was in part due to the promotion of natural gas as supposedly a “transition fuel” and coal as “clean.”

The United States also has questionable priorities when organizing how people get around. Cities rely on car use to an unacceptable degree, which imposes large environmental and social costs. In Ivan Illich’s Energy and Equity, Illich argues that structures like the transportation system in the United States replicate class divisions and also reproduce and justify themselves without concern for whether they make sense at all. In this, he calculates that the “true” speed of a car, taking into account all of the costs, is 3.7 miles per hour. This serves more as a thought experiment than a calculation to rely on but makes his point. Given these costs, cities should focus on the ways of getting around that have the least social costs, like walking, cycling, and public transportation, as well as designing cities better in the first place so that the average person does not need to rely on cars to get around. Instead, cities are mostly doing the opposite: expanding car use, defunding public transportation, building boondoggles like Elon Musk’s under-city single-serve tunnels, expanding in irresponsible ways, relying on ride-hailing services, and indulging in poorly thought out services like dockless bikes and scooters. In this sense, venture capital is subsidizing modes of transportation that have high social and environmental costs, with the government’s backing. The promise of self-driving cars is also influencing the government’s actions. Self-driving cars, although useful in some respects, will exacerbate environmental and social problems in cities, and should represent only a small slice of how people travel in the future. Venture capital and Silicon Valley more broadly are changing how goods are transported as well. Deliveries, both within cities and between cities, are becoming more common. There are environmental costs to these distribution models, although there is scant acknowledgment of them. Packages sent from Amazon or a grocery delivery probably have more environmental costs than the equivalent trips to the store, for example.

A sensible way to limit emissions from transportation in the United States would be to rethink how cities develop and orient them around walking, cycling, and public transportation while restricting private car use. People should live close to where they work, cities should invest in free public transportation (especially buses, which are cheap and effective), and ban or discourage ride-hailing services or other in vogue technologies that have dubious environmental or social benefits. Electric cars should be rare but the norm and autonomous technology should be embraced (although their use should be also rare and used for the same special cases that normal car use would be used for, e.g. transporting the elderly). Rail should be expanded for both passenger and freight use. These are common sense and obvious solutions that the government should support.

 

China: an example for the world

The United States is the country most easily positioned to address climate change but it has done likely the least out of any rich country. China, a country significantly less wealthy than the United States, has likely done the most. In fact, a recent study provides some evidence that China’s carbon dioxide emissions peaked in 2013 and are declining in large part due to changes in China’s industrial structure, which includes pilot programs for pricing carbon, among many other things. China has:

  • Drastically reduced its reliance on coal;
  • Potentially reached peak emissions in a country that’s the world’s largest economy (but also significantly less developed than its peers);
  • Become the largest buyer and producer of solar panels; leader in wind power installation and generation;
  • Undertaken massive reforestation campaigns;
  • A high adoption rate of electric cars.

China’s stunning progress has been called its own Green New Deal. The significance of a middle-income country enacting these policies to its short-term detriment should not be understated. Richer countries have struggled to meet modest emissions goals, and have also insisted that poorer countries undertake large reductions as a prerequisite for their own action. China nevertheless independently adopted policies that led to these achievements. In addition, it did this while continuing to pursue other goals, like poverty reduction.

How was China able to do this? China’s Communist Party undertook significant economic reforms in the 1980s and 1990s in order to grow China’s economy. These changes moved the country into a socialist market economy that introduces some elements of the market into the economy but that also gives the state significant control. The government owns significant parts of the economy and sectors deemed important. It also has more controls on private business than in the West — with agreement from those business leaders. These changes were seen as essential to China developing its productive capabilities and competing in the global economy under the current conditions but also as a step toward socialism and eventually communism.

Unlike in market socialism, economic planning is essential to China’s economy and occurs at many levels of the economy, including the top-most levels. Like other countries that have developed in the 20th century, this planning included export-oriented policies, technology transfers, support for specific industries, and management of its currency. In addition, part of the government’s planning includes the development of an internal market for China’s good and services. This planning, as well as other government policies, probably helped China avoid most of the harmful effects from the Great Recession. Indeed, China’s system seems to be able to largely avoid economic crises that are commonplace in the West, despite near-constant predictions of its economic collapse.

Integral to its more recent planning, is an emphasis on the ecological over the economic, which follows from Marx’s notion of metabolic rift and Soviet ideas about ecosocialism, that capitalism necessarily creates ecological crises and socialism must integrate the environment into the economy. Prioritizing ecological needs could lead to a slowing of the rate of exploitation of the earth’s resources, rather than just an avoidance of the most pressing ecological crisis. In China, this is the concept of an “ecological civilization,” which now has an underlying legal basis. While undoubtedly China believes that its focus on addressing environmental problems will help its long-term growth and stability, its understanding of the problems from a socialist perspective is important as well.

Despite these impressive achievements, China’s ability to set goals and achieve them has garnered little support or acknowledgment in the West. (In fact, poverty reductions from China are often misattributed to the “success” of capitalism elsewhere.) As the United States continues its slide from sole superpower to regional power, attacks on China have ramped up.

It is important to delineate the economic system in China with those of social democracies, like those in Europe. While some social democracies have had impressive achievements, their economic systems — based on exploitation historically and currently — do not fundamentally resolve the tension between classes nor give the government the power to act independently of the market to a large enough degree. Unsurprisingly, the social welfare aspects of these countries are under sustain attacks as politics have taken a turn to the right. As a different conception of neoliberalism, these countries nevertheless have austerity, anti-immigrant policies, and policies that encourage imperialism to various degrees.

 

Insights for climate action in the United States

China’s example provides general lessons for the United States. Capital does not naturally allocate itself to solutions that reduce environmental damage. Even if there were a price on carbon emissions, the government has tools that are needed to reach desired outcomes, which it also must set. The government also engages in research and development that would be unlikely to be conducted by the private sector, which is essential to taking action. These are examples of industrial policy and economic planning. Better management of the transportation sector, previously discussed, would have resulted in a large reduction of greenhouse gases, as would have management of other sectors of the economy. The government can also stop “wrong turns” before they happen, like the focus on developing hydrogen cars or technologies that have little practical or environmental benefits. The government should approach each sector of the economy with this mindset.

In order to use these economic approaches, international, national, and sub-national changes will need to be made. International financial institutions will need to abandon rules that limit industrial policy and economic planning, which have been baked into international financial systems. Given that the United States is probably the largest backer and enforcer of these rules, it would also have a lot of power to change them. Nationally, the United States needs to move past deficit politics and embrace the implications of Modern Monetary Theory, mainly, that taxes do not fund spending and that money is not a restraint on spending but inflation is. More simply put, the United States already has enough resources to enact ambitious policies, and taxes are a tool to keep people from getting too rich. Sub-nationally, the federal government would have to ensure that state and other jurisdictions would not undercut its policies. How cities are managed, in particular, needs to be rethought; the main economic engine of a metro area should control the policies of that area. More generally, the overarching drive toward growth, especially growth that does not take into account ecological damage, as opposed to specific policy outcomes, needs to be reevaluated.

Of course, the economic approaches discussed here and policies like the Green New Deal, in particular, will not be possible without political power. These approaches and policies are essential to taking effective action, however, so they should be integrated into the strategy to build that power as much as they should compose the solutions once that power is gained. Taking on neoliberalism is a daunting task, but it is necessary. It is a mistake to think that undertaking a transformation like that which is required to stop climate change will not require confronting capitalism, or the people who have obscured the ecological crises and contributed to it. China has already done much of the work necessary for creating an economic and political system that is able to make these changes, and there are many lessons to learn from it. Most importantly, is the realization that there is no alternative to increased management of the economy. The planet depends on it.

Tackling Urban Homelessness the Green Way

The US housing affordability crisis is driving more and more of the working poor to live out of cars and squatter homes- the solution seems to be creating more affordable homes in both urban and suburban areas where there is a high level of homelessness amongst the working poor but this means more carbon emissions and pollution in urban areas the long run. A green alternative needs to be found if both homelessness and pollution are to be solved simultaneously.

By Athullya Gopi | The US housing affordability crisis is driving more and more of the working poor to live out of cars and squatter homes- the solution seems to be creating more affordable homes in both urban and suburban areas where there is a high level of homelessness amongst the working poor but this means more carbon emissions and pollution in urban areas the long run. A green alternative needs to be found if both homelessness and pollution are to be solved simultaneously. 

Homelessness is a growing global phenomenon. In the United States (US), its rampant increase is most evident in urbanized areas along the East and West coasts.  Homelessness in the US does not only occur as a result of an individual’s perceived social and economic problems such as mental health and substance abuse issues or the stagnation of incomes, it is also the result of long-standing imperfections in the private US housing market that prevent everyone in the economy who demands housing as a dependable and primary source of shelter from accessing it. Such market imperfections limit the number of affordable housing units supplied by the private sector to urban low or very low income households – often making such individuals or households highly susceptible to homelessness as both incomes stagnate and rents or home values spike. An ideal long-run solution to reducing this type of homelessness is to employ federally mandated policies designed to increase the supply of available affordable housing units to those needing dependable shelter. The idea of increasing the number of physical dwelling spaces in already congested and polluted urban areas, however, implies an added burden to carbon emissions and energy utilization in cities at a time when careful consideration needs to be given to the latter. Is there a green solution to solving homelessness caused by the housing affordability crisis in the US?

The rapid growth of urbanization is most evident in the rising number of people living in cities – by 2030 it is estimated that at least 27% of the world population will be concentrated in cities with a population of more than 1,000,000. It is also clear that the rapid growth of urbanization is increasingly becoming a contributor to global climate change – although cities only account for less than 2% of the earth’s surface 71 to 76% of the world’s carbon emissions originate from urban areas. The impact of climate change is being increasingly felt in urban areas including its homeless. Since 2016 the number of homeless individuals in urban areas perishing from being unsheltered in extreme climate conditions has been increasing.

However, it is not just in urban areas that homelessness is growing. Poverty and homelessness have been increasing in suburban areas in the US over the last 15 years. With homelessness on the increase as a social ill not necessarily constrained by population density or geography more and more households/individuals who find themselves chronically unsheltered as a result will also be directly exposed to the increasingly devastating effects of climate change. A sustainable and joint solution needs to be found to address both problems, one that envisions more eco-friendly homes for those who need them as a source of shelter when they have no recourse to one.

To start formulating such a joint solution we must begin with understanding the source of growth in homelessness over the last few decades. While foreclosures in the post-recession era have largely been responsible for people losing their owner-occupied homes, the source of homelessness relating to economic conditions extends beyond mere market forces that are freely operating.  In the United States, the private housing market is an imperfect one, meaning that there are constraints imposed upon it that prevent demand and supply of housing from fully clearing. The imperfect housing market leads to renters being priced out of housing that is affordable when they are faced with either income shocks (like being made redundant when the economy goes down) or rental price shocks (when an upturn in the economy leads to a surge in property prices and therefore rents). This leads to a growing number of individuals/households that are at risk of becoming temporarily homeless. The Department of Housing and Urban Development (HUD) refers to such individuals as “transients”. Modern-day representations of homelessness are no longer restricted to the visibly homeless woman forced to live in her car while working as an adjunct professor and the army veteran who can only afford housing through a gofundme crowdfunding campaign. The housing crisis is one that is increasingly an affordability crisis.

The imperfect market leads to demand for housing persistently remaining relatively higher than the supply of available housing at any point in time. Often this mismatch between housing demand and supply is the result of the relative inelasticity  (low sensitivity to price changes) of housing supply. Generally speaking when the price of a good or service increases, the supply of housing should respond over time by increasing too and vice versa. Housing supply, however, is relatively quite slow to respond to price signals due to a number of factors that do not directly impact the housing market.  For example state regulations regarding land use vary across the United States and often favor the use of land in urban areas for commercial purposes rather than for housing, making it difficult to quickly increase housing supply in such areas in response to a sudden surge in housing real estate prices.

Additionally, the increasing use of housing real-estate as sources of investment leaves more and more units either vacant or used in a way that allows investors to gain higher than market returns – such as converting them to “AirBnB” units. This indicates that the market is biased towards those in the economy who demand housing real-estate as an investment good rather than as a basic form of shelter. This bias towards housing investors is clearly seen in urban areas by the rising levels of gentrification in cities – a way of making housing investments more attractive and therefore valuable to investors. Ultimately the existence of this bias means that richer entities/households that can afford to purchase or rent more than the one unit of housing they need for shelter gain access to the additional units they demand more readily than the relatively poorer households that need at least one unit for basic shelter. With a ‘sticky’ housing supply and a bias in how demand for housing is met, poorer households are ever more at risk of transient homelessness and not receiving at least the single unit of housing they require to meet their need for basic shelter.

Furthermore federal government safety nets for low income and very-low income households have been declining over the years instead of increasing: there have been no significant increases in federal housing voucher funding to make housing more affordable and more public housing units have been retired or demolished than built between 2000 and 2016 leading to an overall drop of around 200,000 units during this time. All of this implies a greater need for more physical housing units to be supplied outside of the imperfect private sector – to be made available ideally through federal government-led policy intervention that creates housing for the growing population of working poor that are most likely to be made transiently and then chronically homeless.

Increasing the supply of affordable housing to meet the real demand for housing as a source of shelter is only one half of a joint solution – the second half must resolve how to achieve this in a sustainable manner without adding to pollution levels. In this regard, special emphasis needs to be made on urban as opposed to rural areas mainly because the former are focal points of energy and durable goods consumption, both of which contribute significantly to the overall carbon footprint. For example, concentrated energy consumption in urban areas tends to create enough heat to change their surrounding microclimates, even causing them to differ in temperature on average by more than 1 degree Celsius than neighboring rural areas. Urban areas also generate undesirable runoff patterns in water – the way urban landscapes are constructed means that less water gets filtered back to replenish the local water table. At the same time urban areas, because of their warmer microclimates, generate more rainfall, meaning that run-off containing pollutants from industrial sites occurs more quickly and intensely than rural industrialized areas and significantly reducing water quality.

Innovative sustainable construction methods are becoming more popular. One example of a green construction standard is the Living Building Challenge, a green building certification program that outlines how sustainable built-up structures that are net water and energy positive (i.e. water is re-treated onsite and that more energy is generated onsite than consumed). This building standard was successfully used in a sustainable affordable housing project is present in Minneapolis. In 2015 two local nonprofit organizations, Aeon and Hope Community launched “the Rose”, a 90 unit mixed-income apartment complex with half the units assigned as affordable housing at a monthly rent of around $636 for a single bedroom apartment. What is remarkable is that the per square foot cost of constructing the Rose was less than a half that of a similar conventional high-end sustainable building. While it was 20% more expensive and more complicated to build than a comparable code-compliant building the Rose was intended to offer long-term cost-effectiveness by being up to 75% more energy efficient.

Affordable housing is largely not a favorable investment option for real-estate developers and so its sustainable development must be incentivized through policy change – one option would be through tax credits. However future policymakers must remain cautious about private investors using green building techniques in the name of climate change to deliberately ramp up property values.

Such an example appears in a case study of a multifamily residential property development supported by the City of Portland Oregon Department of Environmental Services. The latter is responsible for managing the city of Portland’s wastewater and stormwater infrastructure. In the Barrington Square Apartments project, the property owner retrofitted stormwater controls with greener technology that enabled the removal of more than 350,000 gallons of runoff with pollutants. While at first glance it appears that the Environmental Services Department that supported the project successfully promoted the implementation of green technology in the private sector to clean up of the environment, the project report indicates that the property owner was motivated to make these changes to increase the value of the property itself – an idea that is counter-intuitive to the expansion of sustainable affordable housing.

About the Author
Athullya is originally Indian, born and brought up in the United Arab Emirates. She joined the Levy Masters Program in 2016 after leading a successful career in credit insurance. The choice to swap her role as the head of commercial underwriting with that of a full-time student came after being inspired to see how Economics works in the real world. She now works at the Institute for New Economic Thinking in New York.