TripleCrisis

The Deep Sea is in Deep Trouble

In my book, Scarcity and Frontiers: How Economies Have Developed Through Natural Resource Exploitation, I chronicle how, since the Agricultural Transition 10,000 years ago, a critical driving force behind global economic development has been the discovery and exploitation of “new frontiers” of natural resources. Natural resource scarcity both drives this process – as costs rise with scarcity we develop the technologies to exploit new resource frontiers – and it is a consequence – once frontiers are settled, developed and exploited, scarcity ensues again.

Today, we are embarking on rapid exploitation of a vast new frontier, the Deep Sea of the world’s oceans.

The Deep Sea begins at around 200 meters (m) depth, which is the limit at which sufficient sunlight penetrates the sea for photosynthesis to occur, and extends to nearly 11,000 m. The area comprising the Deep Sea is vast, covering around 90% of the ocean floor. This region consists of many diverse and interconnecting ecosystems, including abyssal plains, continental slopes, deep-sea canyons, manganese nodule fields, seamounts, cold water coral reefs and gardens, cold seeps and hydrothermal vents. The structure, functioning and dynamics of Deep Sea ecosystems are complex and shaped by many factors, including the depth of the water column above them. In addition, it is still poorly understood how these Deep Sea ecosystems interact with the rest of the ocean on which humankind depends for food, climate and ocean regulation, recreation and other ecosystem goods and services.

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The Right Wing Assault On America Is Working

James Crotty, Guest Blogger

Washington has been riveted by the sequester debacle. But rather than the terrible failure of government as portrayed in the media, in fact sequestration is a major victory for right wing forces in their long war to destroy the US version of social democracy. The New Deal was started in the 1930s and improved on through the mid-1970s, after which reactionary forces s began to have success in their efforts to initially weaken it and eventually destroy it. Their goal is nothing less than a return to the political and economic regime of the 1920s, when corporations and the rich paid little if any taxes, inequality was very high, Congress was bought and paid for by the rich, the trade union movement had been broken, and there was little if any regulation of business. Republican presidents since Reagan have been most energetic in pursuit of these objectives, but Democratic presidents since Jimmy have moved in the same direction though more slowly than the Republicans. President Obama is no exception to this trend.

Under the Budget Control Act passed last year with the President’s cooperation, discretionary non-defense government spending (on everything but Social security, Medicare and Medicaid) as a percentage of GDP was scheduled to hit its low point since the early 1950s in ten years. (Obama had also offered to make significant cuts to Social Security and Medicare last year, but the Republicans would not do it because his offer also raised taxes on the super-rich) To get some idea about how deeply the immediate and longer term cuts under Sequestration will be, see http://www.offthechartsblog.org/sequestrations-impact-its-real/.

This budget “emergency” or “disaster” is a major victory for the right wing because it will sustain their onslaught against domestic government spending. For them, this is not some big problem, but a dream come true. Moreover, most of the media coverage has been so lame in its explanation of the causes of this “crisis” that some polls show that an equal percentage of voters blame each party, so Republicans may not even be hurt politically by the outcomes.

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From Financial Crisis to Stagnation: The Destruction of Shared Prosperity and the Role of Economics

Thomas Palley, Guest Blogger

Many countries are now debating the causes of the global economic crisis and what should be done. That debate is critical for how we explain the crisis will influence what we do.

Broadly speaking, there exist three different perspectives. Perspective # 1 is the hardcore neoliberal position, which can be labeled the “government failure hypothesis”. In the U.S. it is identified with the Republican Party and Chicago school economics. Perspective # 2 is the softcore neoliberal position, which can be labeled the “market failure hypothesis”. It is identified with the Obama administration and MIT economics.

Perspective # 3 is the progressive position which can be labeled the “destruction of shared prosperity hypothesis”. It is identified with the New Deal wing of the Democratic Party and labor movement, but it has no standing within major economics departments, owing to their suppression of alternatives to orthodox theory.

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Green Keynesianism: Beyond Standard Growth Paradigms

Jonathan M. Harris, Guest Blogger

In the wake of the global financial crisis, Keynesianism has had something of a revival. In practice, governments have turned to Keynesian policy measures to avert economic collapse. In the theoretical area, mainstream economists have started to give grudging attention to Keynesian perspectives previously dismissed in favor of New Classical theories.

This theoretical and practical shift is taking place at the same time that environmental issues, in particular global climate change, are compelling attention to alternative development paths. Significant potential now exists for “Green Keynesianism” : combining Keynesian fiscal policies with environmental goals.

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U.S. Climate Policy: Take Five

James K. Boyce

“For the sake of our children and our future, we must do more to combat climate change.” These words in President Obama’s State of the Union address came as music to the ears of environmentalists. Do they herald a real effort to break the climate policy impasse in Washington?

Obama urged Congress to pursue a “bipartisan, market-based solution,” citing as a model the cap-and-trade bill sponsored by Senators John McCain and Joseph Lieberman.

The McCain-Lieberman bill failed to clear the Senate in 2003. It failed again in 2005. So did two subsequent cap-and-trade bills, Lieberman-Warner in 2008 and Waxman-Markey in 2010. Any new effort to enact a national climate policy will be the fifth try.

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Agriculture for Africa’s Development: In Search for a Champion

Leonce Ndikumana

The recent growth resurgence in Africa has dominated the news in the media as well as debates in the development community over the past years. This growth resurgence has important features that are distinct from previous growth accelerations, and inspire the optimistic view that, maybe, Africa could be on a path of more sustained growth. A key feature is that, unlike previous growth episodes, recent growth is not just a natural resource story; in particular, it is not just an oil story. Many among the high growers are resource-poor countries whose economies are primarily agriculture-based, such as Ethiopia, Malawi, Rwanda, Uganda and others. Even in the case of oil producers such as Nigeria, agriculture has emerged as a substantial contributor to growth. If Africa is to “conquer the 21^st century” it has to rekindle its love for its agriculture.

In the inaugural lecture of the Speaker Series of the African Development Policy program at the Political Economy Research Institute on 22 February 2013, Professor Calestous Juma of Harvard Kennedy School charted a new strategy for Africa’s future based on technology and innovation-driven agricultural development. In his recent book, New Harvest: Agricultural Innovation in Africa, Calestous Juma provides a blue print for an agricultural development strategy based on four pillars: science and technology, infrastructure, technical capacity, and entrepreneurship. But for this strategy to succeed, it needs new institutions to implement the programs, and, most importantly it requires a developmental leadership that can unify the various centers of decision making (e.g., ministries) and mobilize resource allocation around the agriculture development agenda.

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30 years of financial inefficiency

Arjun Jayadev

One of my favorite lines from recent economics papers is the following one from this paper by Thomas Phillipon, who in talking about the performance of the financial sector suggests that “the unit cost of intermediation is higher today than it was a century ago, and it has increased over the past 30 years. One interpretation is that improvements in information technology may have been cancelled out by increases in other financial activities whose social value is difficult to assess.”

The claim that the financial sector has been ‘functionally inefficient’ was made 30 years ago by James Tobin, and it’s great to have a quantitative basis to make this sort of judgment. Another way to have some sort of handle on the degree to which intermediation has become more expensive is to look at the spread between funding costs and lending rates.

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Euro Area Banking Union

Philip Arestis and Malcolm Sawyer

The EU summit meeting, 28th/29th June 2012, took a number of relevant decisions in terms of a possible euro area banking union. However, this particular set of decisions was more about initial steps rather than steps for a significant move towards such a union. The relevant decisions are related to: banking supervision by the ECB; banking licence for the European Stability Mechanism (ESM); The ESM will provide financial assistance to members of the euro area when in financial difficulty. It was established on 27th September 2012, but will not come into full operation before 2014. It will function as a permanent firewall for the euro area with a maximum lending capacity of €500 billion. It will replace the two existing temporary EU funding programmes: European Financial Stability Facility (EFSF) and the European Financial Stabilisation Mechanism (EFSM). ESM member states would be able to apply for an ESM bailout when they are in financial difficulty or their financial sector is a threat to stability and in need of recapitalization. Another precondition for receiving an ESM bailout will be that the member state must have fully ratified the Fiscal Compact (see our blog of December 2011 for more details on the Fiscal Compact); when the ESM is introduced, it will have access to the ECB funding and this will greatly increase its firepower. Germany objected to the latter proposal on two grounds: the ECB should not be responsible for all 6000 euro area banks (including small banks such as Germany’s regional savings banks); and there should be a clear separation between ECB monetary policy and bank supervision. The relevant European Council statement (adopted on 18th October 2012) insists on such a separation, and yet no focused explanation is provided for such a need. We would argue that such separation is not acceptable. Central banks need to play a key role in supervising banks as the “great recession” has demonstrated. A good example is the case of the Bank of England, where the removal of banking supervision from this Bank in 1997 has now been reversed.

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No Standards, Not Poor

C.P. Chandrasekhar

Early February, the Department of Justice (DoJ) of the US government—represented by the United States attorney general and supported by attorneys general from 16 states—filed civil fraud charges against the ratings giant Standard & Poor’s (S&P). S&P is the largest of the big three agencies—the other two being Moody’s and Fitch—which, for a fee, take on the task of assessing how risky and robust securities of different kinds issued by financial firms are.
The charges were not minor. The DoJ argues that for more than three years between September 2004 and October 2007, S&P “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors” in mortgage-related securities. This was the period when S&P was raking in huge earnings by granting high ratings to complex and opaque derivatives named “collateralised debt obligations” (CDOs) based on mortgage bonds. The DoJ’s case reportedly focuses on 40 such CDOs created at the height of the US mortgage bubble, the rating of which gave S&P $13 million in fees. These bonds went bust, resulting in losses to investors. The DoJ not only claims that S&P knew this could happen when it gave them high ratings or left them unrevised, but also that it misinformed investors by arguing that its ratings “were objective, independent, uninfluenced by any conflicts of interest.”

Progress on punishing institutions seen as responsible for the 2008 crisis has been slow. So it has not just been business as usual for these firms, but license to do things that seem substantially aimed at regaining the credibility they lost in the aftermath of the crisis. The most controversial of these was its decision to downgrade the long-term credit rating of the United States from AAA to AA+ in August last year during the standoff between the Democrats and Republicans over ratifying an increase in the prevailing ceiling on US public debt.

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Not-so-smart ALEC: the right wing vs. renewable energy

Frank Ackerman

Renewable energy is clean, sustainable, non-polluting, reduces our dependence on fossil fuels, improves the health of communities surrounding power plants, and protects the natural environment. Who could be against it?

Answer: The American Legislative Exchange Council (ALEC), a lobbying group that is active in drafting and advocating controversial state legislation. They’re not just interested in energy: in recent years ALEC has supported Arizona’s restrictive immigration legislation, the “Stand Your Ground” gun laws associated with the shooting death of Trayvon Martin, and voter identification laws proposed in many states. ALEC’s priorities for 2013 include making it harder to bring product liability suits against manufacturers of defective products, ending traditional pension plans for public employees, promoting the diversion of public education funds into private schools and on-line education schemes, and supporting resistance to “Obamacare” health policies.

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