Tag Archives: economics

Whose pollution is it?

Now that it is summer, I finally have some time to write about papers published this year that have been quite interesting. I’ll start here first with one published by Lin et al. in PNAS back in February that sought to calculate how much of the air pollution that wafts over to the US from China can be attributed to the stuff we buy from them…. that is, the pollution that is produced through the production of plastic do-dads and other things that we import and consume here. The authors looked at sulfur dioxide (a precursor to acid rain), nitrogen oxides (potent greenhouse gases), carbon monoxide, and black carbon (also implicated in climate change).

In total, they found that “about 21% of export-related Chinese emissions were attributed to China-to-US export”, indicating that one-fifth of their air pollution is driven by our consumption of their goods.

As for the pollution that wafts over to the US, Chinese pollution was sufficient to cause at least one additional day of ozone levels that violated US standards from Los Angeles to the eastern seaboard. In particular, a substantial proportion of sulfate pollution measured in the western US was attributable to Chinese exports.

Quite a few years ago, my colleagues and I wrote about the way that international trade can complicate consumption impacts on the environment…. specifically how the international wood trade can hide the link between wood consumption and deforestation. One of the consequences of our increasingly international economies is our growing blindness to how we impact our environment (which is now global as well). Prior to the Industrial Revolution, production and consumption were mainly local to regional; product availability was closely tied to regional weather, soil, and human labor. Prices could reflect these conditions and overall supply, including how that supply impacted the quantity and quality of resources such as water, air and soil. Now that our economy has globalized, we need to find better ways to allow product data and prices to once again reflect the environmental capacity of the system, so that we can better understand the impacts of our consumption. Lin et al.’s paper nicely illustrates why we should care about pollution in China; our environments are as connected as our economies, and negative environmental impacts elsewhere have a way of “boomeranging” back to us.

Development vs. growth

I’m live-blogging this week from the US-IALE conference in Anchorage Alaska….. a lot of great discussions going on here!

Brian Czech from the Center for the Advancement of the Steady State Economy gave our plenary talk this morning about sustainable natural resource management and ecological economics. He cautioned us to be mindful of the words we use, particularly development vs. growth. Growth implies that an increasing amount of natural resources will be used over time, and the economy will expand. Development, on the other hand, allows for maintaining natural resource use at current levels, but changing how we use them (e.g., more efficiently and effectively).

Just an hour later, a presenter discussed how the Bureau of Land Management sets and works towards landscape management goals for the Prudhoe Bay area, including “sustainable economic development of natural resources”, however it became clear that BLM is really referring to “sustainable economic growth”. Brian was on-hand to point out the vast policy implications of this terminology choice; a very instructive lesson!

Unsustainable wealth

An academic paper and a book are emerging that have made two large bangs in the world; both examine the sustainability (or lack thereof) of wealth inequality.

As reviewed in Common Dreams, a new paper in Perspectives in Politics by Martin Gilens and Benjamin Page, “Testing Theories of American Politics“, use a robust dataset to test four different possibilities of how our governance system is currently working. They find very little support for the forms of democracy that we commonly think we have, and instead find that our system most resembles an “Economic Elite Domination” and “Biased Pluralism”. In these systems, laws and policies are shaped by those who have the most resources in society, not the majority. Given the most recent Supreme Court decision that further reduced spending limits on political races, I fear that we’re seeing our system travel through a positive feedback, where fewer limits on money in politics begets more money for those who have it, who then have more to spend on further reducing political spending limits.

Thomas Piketty’s new book (at least new translation from French to English), “Capital in the 21st Century”, likewise uses data to demonstrate how capitalism inherently drives wealth inequality when the rate of return on capital exceeds the growth rate of an economy. Rave reviews by Paul Krugman in the New York Review of Books and by Nick Pearce in the New Statesman reflect the excitement that Piketty has empirically demonstrated what we have all intuitively understood for decades: concentration of wealth into a few families is due to system dynamics, not to the talent or intelligence of the wealthy. Indeed, concentration impedes progress of both individuals and societies. Just as unfettered money drives democracies towards oligarchy, wealth unfettered by taxes (to suppress return rates on capital below the growth of the economy) allows a positive feedback of wealth begetting wealth to form without any productivity to show for it. We are experiencing the outcome of this system dynamic: increased speculation and volatility in markets as more capital seeks higher returns, and stagnant and/or declining wealth in lower classes while wealth explodes in the upper 1% and 0.1%.

These two studies illustrate not just what we are experiencing, but why we must put the brakes on these feedbacks. The concentration of wealth and its influence on our democracy are self-reinforcing. These feedbacks pull us away from the democratic society we aspire to be, where we each have an equal chance to reach our potential and have an equal say in how the rules are made.

Solar Photovoltaic Tariff Wars

[This is a post from Edward Louie, a MS student in the Environmental and Energy Policy program here at Tech. This was an assignment for our Ecological Economics course.]

Tariffs are normally imposed to protect and support domestic manufacturing, in particular emerging industries, by disincentivizing the purchase of imported equivalent products. The higher market price encourages greater supply of the domestic product. Neoclassical economists tend to view tariffs as regulations that distort the free market.  They argue that tariffs help domestic producers and the government via increased revenue and taxes at the expense of consumers, and they artificially shield an industry from competition, delaying collapse, but also slowing the innovation needed to be competitive. Tariffs only make sense if the financial gain by the government and increase in domestic demand outweighs the efficiency loss from reduced overall demand due to higher prices.

Throughout the 1990s and into the mid-2000s the cost of solar panels has decreased at a snail’s pace remaining at 3 to 4 dollars a watt that is until 2008 when Chinese manufacturers began mass producing solar panels with low cost labor on an economy of scale. Since 2008, the price of solar panels has plummeted breaking the one dollar per watt barrier in 2011. Beginning in 2012, the U.S. Department of Commerce imposed a 31 percent tariff on solar panels imported from China. The tariff was imposed when several manufacturers of solar panels in the U.S. (including SolarWorld and six others) complained to the Department of Commerce that Chinese factories are subsidizing manufacturing costs in order to flood the market and kill off competition with below-market price panels. These complaints came after several solar manufacturers in the United States and Germany filed for bankruptcy, while the market share of Chinese panels rose to nearly two thirds. However, more than 700 other firms, organized under the Coalition for Affordable Solar Energy, opposed the tariff. The opponents, which include manufacturers, installers and others involved in the solar industry, argue that the tariff will make solar energy less affordable. In 2013 the tariff wars continued with China imposing a 6.5% tariff on U.S. solar polysilicon suppliers. American companies defended their low prices, attributing them to inexpensive hydroelectric power. The European Union also imposed a tariff on Chinese solar panels and Chinese glass used to make solar panels.

Tariffs on solar panels will likely backfire and actually hurt the U.S. solar industry because 52% of U.S. solar jobs are in installation, another 18% in sales and distribution, and more in polysilicon manufacturing (the raw material of solar panels) (Lubin, 2012). In the midst of these tariffs, the average installed price of solar panels in the U.S. has continued to fall. However, it would be a large step backwards if this trend were to fall victim to escalating trade wars. Only time will tell if these tariffs have a positive or negative effect on the U.S. solar industry. With the U.S. solar industry continuing to grow, it may be difficult to identify out the percentage of additional growth or decline that could have been realized had these measures not been implemented. In today’s highly globalized world, it is often difficult to know for certain which economic policy tool to use and its effects and unintended effects.

Inside Job – Where are they now?

[This is a post from Brent Burns, a PhD student in the Environmental and Energy Policy program here at Tech. This was an assignment for our Ecological Economics course.]

After seeing Inside Job, a documentary detailing the global financial crisis of 2008 through research and extensive interviews with financiers, politicians, journalists, and academics, I was curious to see how the accused perpetrators (banks, economist, etc.) are doing today as we approach 2014, so I did a Google search on “2008 financial meltdown where are they now” and found some good, yet concerning, updates.

In September of 2013, Allison Fitzgerald from The Center for Public Integrity published Ex-Wall Street chieftains living large in post-meltdown world, detailing the current luxurious lifestyles of five of the worst Wall Street offenders partially responsible for the 2008 meltdown.  The article discusses leaders from Lehman Brothers, Bear Stearns, Goldman Sachs, JPMorgan Chase, and Merrill Lynch, describing how each of the leaders made off with hundreds of millions of dollars, as the majority of the nation’s middle class lost their life savings and homes.

Brayden Goyette, from ProPublica, wrote another good article in October 2011, Cheat Sheet: What’s Happened to the Big Players in the Financial Crisis, describing some of the political and government figures involved in the crisis.  For example, Larry Summers went on to serve as Treasury Secretary and was almost nominated to serve as head the Federal Reserve for President Obama.  The Guardian’s Rupert Neate provides one of the best summaries with his August 2012, Financial crisis: 25 people at the heart of the meltdown – where are they now?. This article reviews the bankers, politicians, and others involved in the crisis and their current lifestyle (as of 2012).  Judging by the S&P 500 index (a leading indicator of investment returns) for the companies headed by the individuals referenced in the article, the year 2012 was a good one: the index has increased 27.42%.  However, the gains experienced by these companies has not translated into good times for all. To illustrate, Dave Gilson and Carolyn Perot’s 2011 article, It’s the Inequality, Stupid graphically displays the inequality growth in the United States over the past 30 years.  The recent stock market gains have only increased the gap and rewarded those who helped cause the 2008 crisis.

After reviewing what has happened to those responsible for the financial collapse of 2008 and how they were financially rewarded for their poor (and some would argue, criminal) performance, the prospects of a sustainable economy are very dismal.  There has not been any deterrent to the behavior which led to the 2008 meltdown.  Without any criminal prosecution, it’s only a matter of time before the next financial crisis happens.  In January 2011, Glenn Greenwald from the Guardian wrote The Real Story of How ‘Untouchable’ Wall Street Execs Avoided Prosecution. In summary, the Department of Justice and the Obama administration never even tried to prosecute, which is a failure of justice.  Right now, banking and political leaders are leveraging new loop holes to maximize the profits of few at the expense of the many, without fear of any personal consequences.

The price of gold and the loss of forests

“Everything is connected” is something we say so often in ecology that it often loses its meaning. However, this new study published today in the Proceedings of the National Academy of Sciences really exemplifies the real world impact of these connections.

Skyrocketing gold prices, driven mainly by speculators, has spurred an epidemic of illegal mining (and consequently deforestation) in the Peruvian Amazon. These mines are dangerously close to a major river system, increasing the risk of mining pollution entering the Madre de Dios River watershed. Mining and deforestation often go together, as we know very well here in the UP.

Greg Asner and his colleagues used remote sensing imagery to detect these mines and measure deforestation caused by them. The images themselves provide a powerful message. Each hectare lost to mining can support hundreds of tree species, and thousands of animal species which depend upon them. The loss of these forests and risks of pollution are difficult to calculate, and therefore difficult to balance against the fluctuating value of the gold retrieved from the mines.

Happy new semester! Happy planet?

As we move ever closer to the beginning of the fall semester, I am struck by something I read recently about how we think about – and measure – aggregated well-being. My hope is that all students can feel happy and secure in their experiences here at Tech, as I hope for happiness and security for all human beings. But how do we measure conceptions of well-being? At a national scale, “Gross Domestic Product” (GDP, for example US GPD) is a pretty typical measure, which considers the total sum of economic activity. But, as a recent article in US Today highlights, GDP is a measure of total economic activity. It doesn’t differentiate between wealth concentration and wealth distribution or “good” versus “bad” expenditures (such as the economic exchanges that happen in when we work to recover from national disasters). Furthermore, it by definition cannot consider any type of exchange that is non-economic, such as a mother’s care for her child,or the non-economic value that comes from growing vegetables in your yard, or myriad other things. GDP certainly can’t consider ecological impact, which others have attempted to capture in the ecological footprint measure.

The article presents an alternative means of measuring aggregated well-being, called the Happy Planet Index (HPI). The website for HPI says it’s about “measuring what matters” – “the extent to which countries deliver long, happy, sustainable lives for the people that live in them.” This measure includes life expectancy, as well as a nation’s ecological footprint, and the resulting data in terms of ‘who’s happy’ (i.e. which nation’s score best using this alternative measure) may surprise you.

I’m not ready to say the HPI captures everything that matters, and leaves out everything that doesn’t, when it comes to considering aggregated well-being. Yet I do think it’s important for us to ask ourselves, what does it mean to live well, at both a personal and a social scale? As we embark on a new semester, and for some an entirely new chapter in life, can we ask ourselves: what makes a happy student, a happy campus, a happy person, and a happy nation – and can we work toward promoting happiness and well-being in a way that is intentional and holistic, filled with purpose to promote everything that matters and forget everything that doesn’t?

For all of you: Happy new semester, and happy planet.

The meaning of money

I will be teaching a graduate level course in “Ecological Economics” this semester, a field of interdisciplinary economics that is usually classified under “heterodox” economics or, as the French like to call it, “post-autistic” economics. The fundamental principle of ecological economics is that our economy is dictated by physical limits (such as the second law of thermodynamics) and does not adhere to the assumption that different forms of capital are substitutable… there is an insufficient amount of human labor that can substitute for the work done by pollinators like bees, for example.

Along those lines, I’ve been thinking about what money means to us, specifically how the pictures we put on our currency might shape the way we think about what is valuable.

In the United States, our paper currency and coins all have the head of (most often) a President, Founding Father or Treasury Secretary on one side (we do have dollar coins with Susan B. Anthony or Sacagawea on them), and on the other side generally either a pyramid and Eye of Providence and/or an eagle clutching olive branches in one talon and arrows in the other. With these designs I believe we are emphasizing the value of our past, of our country’s “social capital” as a democracy. But aside from the bald eagle (our national bird), our currency doesn’t recognize our natural capital. Does that lead us to devalue it?

What about other countries? Brazil’s currency features memorable rainforest animals on one side… Brazil is a country famous for its Amazon rainforest and the natural capital it represents. Likewise, many of Australia’s coins feature species such as the kangaroo and platypus that are endemic to the country and hold great cultural value. Granted these two countries have dramatically altered their land use and resources – Brazil still suffers from a positive deforestation rate – so a symbolic link between natural and financial capital may be a good first step but not sufficient to promote more sustainable resource use.

One of the most significant conclusions from the ecological (and heterodox) economics field is the realization that selling capital and calling it profit is not good economics. Just as you wouldn’t take $100 from your bank account and say that you made $100 in profit that day, it is unsound economic policy to sell our forests, fish, or other natural capital and call that profit… it is simply the exchange of one kind of capital (natural) for another (financial). I wonder if putting pictures on our money of our natural capital would allow us to make the distinction between capital and profit more clearly.