Saturday, December 31, 2011

Caught between a rock and a hard place: What, in the end, do we want?

One of the main activities of an earnest thinker is to convert the frustration of stale ideas into food for further thought. It's basically a mental recycling mechanism. It used to be called "dialectics," but that sounds too Soviet and outdated, so let's not be fetishistic about the term. All it means, really, is that tensions, seeming inconsistencies, or even what sometimes feel like downright impossibilities need to be pushed to their own extremity, and gone into fully, so that a solution emerges from the very insolubility that seemed so perplexing. It's a tricky business. It can lead to all sorts of delusions and wishful thinking. But it's also the core of creativity through emergence. It's not just a matter of dialogue: What we need is dialectic dialogue, by which I mean a way of talking and debating that leads from the mere opposition of "A" and "non-A" (which can go on forever and can justify a pluralistic, sometimes polite and sometimes conflictual, but completely indecisive state of affairs in which the status quo continues to thrive) to their overcoming towards "more than both A and non-A."

Why am I saying this? Well, one of the consistent frustrations of my intellectual life is that I feel constantly caught between a rock and a hard place when it comes to presenting and discussing the "next-step" economy. When I draw up demanding long-term horizons, like I've done in most of Part 4 of this blog, the realists and the moderates throw their arms up in the air and claim that no actual credible transition scenario has been offered. Where, they ask, will we find the social forces and the psychological resources that would make the six framework measures palatable and feasible to most citizens? (One brand of realist are conservatives, who believe such social forces and psychological resources not only are non-existent, but shouldn't exist because human beings are as they are and because greed, short-sightedness, and lack of reflexivity are simply a given.) And when I present a moderate next-step scenario in which the current actors who dominate the economic and political scenery are given the benefit of the doubt and in which a Green New Deal, sustainable investment and banking, and eco-preneurship could serve as realistic steps towards more profound changes, the radicals, deep ecologists and bottom-up democrats feel betrayed and get annoyed, asserting that "green capitalism" can only reinforce the problems, never contribute to their solution -- and that even the six framework conditions are much, much too consensual...

So it seems I'm damned if I do and damned if I don't. It's an occupational hazard I'm quite willing to bear for a while, but not to adopt as my permanent professional ethic. Simply engineering a perpetual "democratic dialogue" between realists and utopians, between progressives and conservatives, has ceased to be an interesting and worthwhile goal for me. By that I mean that resolution and resolve have to follow upon dialogue at some point. This is what democracy is for. The issue -- to risk belaboring a point on which I have already insisted quite often here -- is not bottom-up versus top-down, or science versus politics, or long term versus short term, or left versus right, or green capitalism versus (truly) sustainable post-capitalism, or whatever else. I don't scorn people who deal with these oppositions; I've spent quite a lot of time and energy myself over the past decade trying to find an orientation among them. They are not totally irrelevant oppositions, but I feel they have started to become obstacles to dealing effectively with the single most important issue: How do we organize a free, open economy at the planetary level in which freedom and openness are compatible with the incontrovertible fact that any development trajectory must take place within a finite, non-growing biosphere among finite, fragile, and questioning human beings?

This is the very precise reason why I am convinced that (as I argued in my previous post of December 22, 2011) the paradigm of Existential Ecological Economics, or "EEEcon," is the only possible way forward. I have little patience for discussions about whether EEEcon is conservative or progressive, or about whether its inspiration ought to come from political ecology or from the Austrian school of economics. Such stale and, meanwhile, outdated oppositions need to be recomposed into new, productive, and fruitful tensions. For instance, it is important to know how to make EEEcon compatible with the science of climate change and of natural resources, and it is crucial to create massive dialogue between climate and natural-resource scientists and ecological economists. Nicholas Georgescu-Roegen made this dialogue a cornerstone of his "thermodynamic" critique of neoclassical economics, and Herman Daly's call to replace the neoclassical "empty world" view by a scientifically rooted "full world" view obviously presupposes a constant revision of economic principles in the light of scientific knowledge. In an "empty world," natural resources are not scarce -- and, I would add, human beings are not pushed to their emotional and existential limits. In such a fictitious world growth, measured as increasing throughput, effectively has no significant negative effects, and whatever relative scarcity arises can be immediately reflected in continuously but minutely shifting relative prices on efficient markets. In a "full world," on the contrary, relative prices shift abruptly as scarcity becomes massive due to the economic subsystem's overshooting of the physical limits of the ecosystem -- and, I would add again, due to increasingly massive disruptions in human beings' lives and in the circulation of "resources of meaning." To keep growth going, costs skyrocket and can only be dampened by increasingly distorted, and hence ecologically false, prices thanks to subsidies or to geopolitical "resource wars." As ecological economists recognize, investigating the constraints of a "full world" is impossible without the input of scientists who exercise their criticism vis-à-vis absurd assumptions such as the infinite substitutability of natural and economic capital.

I believe that such interdisciplinary research stands to gain both from approaches that are traditionally labeled conservative -- such as the Austrian school of von Mises and Hayek, which has much of interest to say about currencies and markets -- and from ones that are usually called progressive -- such as political ecology in the tradition of Gorz and Illich. This doesn't mean we have to create a consensual, indistinct mush of ideas designed to satisfy everyone. It simply means that the dividing line between status quo realists and pie-in-the-sky utopians is no longer productive; we need to co-opt all relevant scientific knowledge and all interesting economic ideas in the ruthless search for a paradigm that will draw a new line: between those who effectively believe in an "empty world" view based on scientifically untenable assumptions; and those who endeavor to construct a scientifically correct and economically sound "full world" view that allows to replace prosperity as growth by prosperity as development without growth. The realist/ utopian divide has ceased to be useful because the purportedly realist arguments of those who believe that perpetual "decoupling" and technological progress can offset tendencially rising throughput seem outright utopian to those who have moved towards an approach of strong sustainability -- and whom the realists, in turn, continue to label utopian because of their claim that a stationary, non-growth economy can be prosperous.

In my more radical days I used to be wary of Tim Jackson when, towards the end of his Prosperity Without Growth, he asks about the reforms he proposes: "Is it still capitalism? Does it really matter?" (p. 202) I saw this as a troubling sign of ideological compromise. Now, even though I still have qualms about certain aspects of Jackson's approach, I think I understand this particular position of his a bit better. It's not so much a matter of standing on one side or the other of predetermined political and ideological lines, as it is a matter of simply investigating, on the basis of the existing scientific evidence coming from geo-, bio- and climate science, to what extent a capitalistically driven economic system can cohere with a "full world" view. I am still skeptical about the possibility for capitalistic incentives to generate endogenous growth-dampening mechanisms and, even more so, of making a non-growth economy viable and just. Indeed, from within the current capitalistic incentive mechanisms, arguing against growth is -- to quote a colleague of mine -- like "being a pacifist on the eve of a major war." And that's why I now believe that the main task of democratic political governance today is to engineer a gradual transition whereby green capitalism is harnessed by new institutions and new mentalities, in such a way that its own "green" component will gradually make the emergence of sustainable ways of producing, working, consuming, and investing -- that is, ways of producing, working, consuming, and investing that replace growth by development without growth -- an endogenous necessity.

Can this be done while retaining a capitalistic incentive structure? I'm not sure at all, and I have indicated it in various previous posts, but it simply has to be left open at this "immediate next step" stage. Status quo realists will scold me for wanting to make "green" capitalism into what it cannot be -- namely, a stepping stone towards a post-growth development model, which to them is heretic given that growth is (they claim) the only tool we have ever had to promote development. Green utopians -- who quite rightly, in fact, see themselves as green realists given the mounting evidence of ecological catastrophe, but who have to be labeled utopians in reference to how far they believe we need to move away from the status quo -- will resent me for seeking to make green capitalism into an avenue towards a post-growth development model, when we know (they claim) that it is in fact intrinsically unsustainable and can only impress and mislead gullible consumers and investors through greenwashing. For the status quo realists, "green growth" is what we need -- although they fall virtually silent when pressed for an answer as to how we're going to avoid the finitude of the biosphere. Ever-deepening "decoupling" thanks to perpetual technological progress is their standard, increasingly desperate reply. Almost no physicist, chemist, or resource scientist believes in this reply anymore. For the green utopians, "green development without growth" is what we need -- although they need to (and increasingly do) face up to the insufficiency of the usual answers they offer, be it in terms of voluntary simplicity, self-sufficiency, transition towns, bottom-up local governance, and so on. Virtually no institutional economist will accept that such ideas can help solve the massive problems we are facing, if they aren't supplemented by (a) structural measures to harness today's capitalism into a new global compact and (b) a co-opting of today's entrepreneurial and financial classes into a new view of sustainable finance, banking, investment, and international trade.

So what, in the end, do we want? A more or less perpetual angry face-off between status quo realists (often denounced as utopians) and green utopians (often claiming to be realists), throwing around the usual couples of opposing concepts? Or a low-key but earnest attempt to combine whatever can be gotten from both realist and utopian approaches into a next-step economy that harnesses the existing power relations towards development without growth? In the former case, we're sure that while the opposing factions are bickering and throwing invectives at each other, the status quo will perdure -- and the "transition" model will look increasingly unlikely as the "collapse" model becomes more and more probable (see the April 16, 2011 post). In the latter case, we'll at least have a chance to engineer a new brand of economics -- EEEcon, as I have labeled it, which combines ecological and existential economics with institutional knowledge from political science and law, and with knowledge from geoscience, bioscience, and natural-resource science: a new brand of economics that can offer hope and direction in an intellectual landscape where brilliant but irrelevant models and theories abound.

Those of us who embrace this new brand of economics are bound to remain caught between a rock and a hard place for a while yet -- but we are not without the resources to create dialectic dialogue, a way of asserting the absolute necessity of development without growth while inviting all areas of knowledge and practice to participate in the endeavor. Something which, I have no doubt, both the realists and the radicals will see as yet another sign of the "weakness" of the approach. But that, as I said, is an occupational hazard I'm willing to bear. It's a difficult job, but somebody's got to do it...

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This post from the "Eco-Transitions" blog by Christian Arnsperger is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

Thursday, December 22, 2011

2012, the year of Ecological Economics? Exploring the mad rationale for asset price bubbles

Hello everyone,

It's been a while -- almost five months now -- since I last posted anything. There are various reasons for this, none of which I want to go into here. Considering this long silence, it's rewarding to see that Eco-Transitions has kept being visited from all over the world.

The need for thought on, and action towards, the transition to a new economy certainly has not diminished. However, there has been massive displacement from issues of ecological and economic sustainability to issues of keeping the globalized financial system from collapsing. As we collectively struggle to continue bailing out banks, financial institutions, and governments whose debt-ridden demise would mean disaster for hundreds of millions of households and firms, we shove climate change, peak oil, and transition into the background again. Doing so, we are in fact severing the link that exists between an economically unsustainable financial and monetary architecture (based on debt overhang as the main source of mainly scriptural profit-mongering, massively disconnected from the real economy) and an ecologically and anthropologically unsustainable production and consumption system (based on the structural need to overshoot available natural and human resources by denying finiteness and remaining deaf and blind to both bio-environmental externalities and anthropo-environmental internalities). Severing this link and worrying primarily about how to keep the financial and monetary scaffolding from crashing down on workers, families, small and medium enterprises, and governments is a massive diversion. Not that we shouldn't be worrying about this -- indeed, we should, and urgently so. But the very fact that we have to be worrying about this and are, in the process, losing the broader picture of what's wrong with that scaffolding even when it "works well," simply shows the degree to which we have collectively become hostages to a debt-money and leveraging mechanism that has long catered to our wild dreams and illusions of sustainable quantitative growth.


In fact, as I explained in earlier posts, one of the main reasons why this growth-oriented system of production and consumption is unsustainable -- that is, generates actions that systematically ignore that the economy is a sub-system of a finite, non-growing biosphere -- lies in the financial and monetary architecture that supposedly "finances" this system. Far-sighted (that's Newspeak for "prophetic") analysts like (a.o.) Bernard Lietaer, Margrit Kennedy or Richard Douthwaite have been hammering this message for two decades -- and have been joined more recently by a new generation of younger and no-longer-so-young people such as (a.o.) Richard Heinberg, John Michael Greer, Charles Eisenstein, Stephen Belgin, Marek Hudon or myself. Not that we all agree on all the specifics of how a new monetary and financial architecture could emerge and what it would look like. We don't. However, we agree on the basic premise that the hubris -- the denial of physical limits, the built-in refusal of human finiteness -- characterizing the current money system is largely responsible for the consistent overshooting of natural resource utilization and the equally consistent damage inflicted on so-called human resources. In other words, we agree on the fact that the way money is being created, circulated, and spent in today's globalized economy violates the basic tenets of the paradigm of Ecological Economics due to Nicholas Georgescu-Roegen, Kenneth Boulding, and Herman Daly.

Ecological Economics doesn't deny the need for money -- meaning, simply, the existence of one or several means of exchange that are accepted for payments by all members of a community, including the government -- nor does it reject the necessity of financing economic activity. It doesn't question the usefulness of markets as devices that support a healthy division of labor. What Ecological Economics simply and straightforwardly rejects is the unholy cocktail of bank-debt-money and competitively oriented "innovation" that makes globalized financial capitalism into a forced-growth system. The unavoidable finiteness of the biosphere -- which various mainstream growth models tend to minimize through the tricky idea of "decoupling" -- implies that "prosperity as growth" needs to be replaced by "prosperity as development without growth," to borrow Daly's terminology. More precisely, it's all about creating possibilities for qualitative flourishing that don't depend on quantitative accumulation. By now, this idea has almost become a commonplace platitude. The question is, Why does it motivate so few of us?

A by and large stationary economy such as the one Daly calls for is incompatible with massive leverage (i.e., debt financing predicated on future value growth), since the latter relies on the tacit assumption that asset values measured in dollars or euros can keep growing essentially into infinity. Moreover, this value growth can't possibly be purely inflationary, since this would mean that no additional purchasing power is generated and all value growth is due only to rising prices. Speculators of all walks of life rely on asset-price bubbles in order to quickly siphon off sufficiently high numbers to their own bank accounts -- but once that money has landed on their accounts, by God they want to be able to count on it in order to buy more stuff! Huge amounts of money that aren't backed by material stuff to purchase (at least potentially) become totally useless. So the basic message of the financial and monetary system to the rest of the economy is: Now that we've generated this huge overhang of pending means of payment, now that all our banks have created this flood of scriptural cash based on speculators' bets -- and therefore debts -- we expect the real economy to make the goods and services available for all this cash to be spent. Remember that this was the reason why Fed Chairman Alan Greenspan encouraged, or at least totally condoned, the subprime lending spree: It was supposed to help already over-indebted households spur on the real economy through new home-building projects. In a sense, this was "financial Keynesianism": the Fed allowed vast quantities of cash to flood the economy, hoping this would (just like Keynes had hoped public expenditure would) generate spending, employment, and growth.

The housing asset-price bubble was used as a strategic tool. It was encouraged and consciously sustained. It was, in a sense, the ultimate bet: Let a localized inflationary craze generate sufficient bank-account wealth for a sufficient number of people, so that when they start to spend this as yet unbacked monetary wealth, the material wealth that was needed to back it would start getting produced. Greenspan's bet, rooted in his deep faith in self-regulating markets and in the "prosperity as growth" paradigm, was that this would jump-start a virtuous process through which the real economy would rally to quickly close the gaping chasm created by the financial and monetary logic of money creation. It didn't work. It eventually forced most States to create even more debt in order to bail out the perilously exposed banks and financial institutions that had speculated on the continuation of growth. And now that the sovereign-debt crisis is threatening the whole architecture, the immediate reflex is to try to spur on growth through yet another "trick": no longer through a new asset-price bubble, but through a massive "austerity" plan based on the idea that since private-sector economic agents are better able than the public sector to generate real wealth quickly, so that public spending has to be reduced drastically in order to free up resources for investors, private employers, and privately employed households to spur on growth. Austerity measures are thought to be a growth-creating measure by which the reduction of public deficits will supposedly increase private opportunities, so that supposedly efficient competitive markets will generate the needed economic growth.

Does that sound like the remedy is awfully similar to what caused the disease? Only because it is. And it couldn't be any different as long as the basic architecture of the financial and monetary system remains what it has been. Prosperity as forced growth is simply how this system defines the possible horizon. As I was watching the documentary "Inside Job" yesterday night (you can stream it on, I clearly felt the extent to which the main actors of the financial crisis in fact staunchly believe that there is simply no other possibility than to keep pursuing the same old macroeconomic project -- what can vary is the kind of tool (whether a new asset price bubble or a wave of austerity measures) that is best used in order to pursue it. Is it any wonder that, in parallel with this scramble for yet another jump start, we are witnessing such ecological regressions as Barack Obama stopping the process of improving air quality in the air traffic sector, or Canada announcing that it is leaving the Kyoto Protocol? It simply seems impossible to fully accept that prosperity cannot -- can no longer -- be bought at the cost of denying the biosphere's finiteness and the fragility of human beings.

Ecological Economics offers an alternative avenue. It argues that the whole architecture of our system, and in particular its monetary and financial aspects, needs to be recast. The bulk of the past posts of this blog are an attempt to suggest directions in which this recasting process might conceivably move. Why are these directions so very, very difficult to accept? I think that this question, more than the content of the measures to be implemented (about which a broadening consensus is actually emerging), needs to be addressed. Ecological Economics clearly questions what it means to be "rational" nowadays. It therefore needs to face squarely the existential issue of why its basic macro- and microeconomic assumptions -- all resting, basically, on the all-pervading fact of finiteness -- generate such deep distress. Why do they trigger such fears and anxieties? Why do so many of us perceive that the new assumptions fly in the face of the very meaning we've learned to give to our lives? Why is ecological rationality so quickly brushed under the carpet as soon as economic growth stalls? These are crucial questions. And this is why Ecological Economics needs to be supplemented by what I call Existential Economics -- the analysis of how deep-seated fears, as well as non-investigated worldviews about what existence means, condition what we consider to be economically rational, feasible, and realistic.

Without such an investigation, the "next step" we need might be either too timid, or deemed unfeasible from the beginning. More on this as we move into the New Year.

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This post from the "Eco-Transitions" blog by Christian Arnsperger is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.