Economics, the Environment, and Our Common Wealth

In his new collection of essays, James K. Boyce explores the idea that the environment belongs in equal measure to us all; a clean and safe environment is not a commodity to be allocated on the basis of wealth, nor a privilege to be allocated through political power, but rather a basic human right. Building upon this premise, Boyce explores the many ways in which economics can be refashioned into an instrument for advancing human well-being and environmental health. Topics covered include environmental justice, disaster response, globalization and the environment, industrial toxins and other pollutants, cap-and-dividend climate policies, and agricultural biodiversity.

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Restoring Fiscal Policy in the Monetary Union

Panico and Purificato, Guest Bloggers

What is to be done to solve the European debt problem? In our view, fiscal policy enhancing growth and central bank interventions to reduce the interest rates on sovereign securities are necessary. To enact them, a satisfactory answer must be given to the moral hazard problem regarding the behaviour of national authorities: if the Euro governments help out national governments that are in budget difficulties, what is to prevent these nations from engaging in irresponsible budget policies in the future? The literature indicates viable solutions (Panico and Purificato). It suggests reforming the organization of the coordination process between monetary and fiscal policies in such a way as to minimize the moral hazard problem regarding the behaviour of the national Governments. A European fiscal agency can serve this purpose. It can fix, year after year, the ratio deficit-GDP for each country, taking into account the cyclical conditions and the needs of the economies, while realizing the objective of financial sustainability.

The organisation of monetary policy in the euro area is based on effective forms of coordination that minimise the uncertainty on how the national central banks implement the decisions taken at the European level. In fiscal policy, instead, national governments can agree on decisions at super-national level, but behave differently at home without suffering negative consequences. Opportunistic behaviour is then possible and this leads the monetary authorities and national Governments to defend themselves from the unreliable behaviour of the others. Under these conditions, the search for a sensible policy for the whole area is an empty aspiration.

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Climate Economics: The State of the Art

Frank Ackerman

Climate science paints an ever-more-detailed picture: irreversible, catastrophic events are becoming increasingly likely as greenhouse gas emissions continue to rise. Climate economics, particularly in its policy applications, lags behind: leading models and analyses frequently ignore the extreme risks and the intergenerational aspect of the problem – and rely on simplistic and dated interpretations of the underlying science. Yet the state of the art has progressed rapidly, in the research literature on climate economics as well as science.

To address this problem, Liz Stanton and I wrote Climate Economics: The State of the Art, which has just been published by Routledge. Our book grew out of a request from the World Wildlife Fund for an update on climate economics since the Stern Review. In that 2006 review, commissioned by the British government, Nicholas Stern argued persuasively for a new approach to the economics of climate change, emphasizing arguments for a very low discount rate and a focus on catastrophic risks.

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The Persistent Power of Finance

C.P. Chandrasekhar

In a move that went contrary to what is expected of regulators, the Securities and Exchange Commission of the US approved in mid-December a controversial JP Morgan-created exchange-traded fund (ETF) backed by physical supplies of copper. The fund will use investor money to buy and hold copper, presumably to earn a profit when prices rise. According to a NASDAQ analysis the investment vehicle will register 6.18 million shares backed by 61,800 metric tonnes of copper in physical form stored in warehouses approved by the London Metal Exchange or located in the Netherlands, Singapore, South Korea, China and the US, and not approved by the LME. With this decision of the SEC, copper joins metals such as gold, silver, platinum, and palladium that are already traded through ETFs. If the JP Morgan proposal goes through so would another ETF proposed by Blackrock titled iShares Copper Trust, which awaits SEC approval.

Copper is a metal much in demand for electricity wiring and various industrial uses that are growth areas in many emerging markets. The result is that copper has been trading in rather tight markets. According to the International Copper Study Group, apparent global usage of copper rose by grew by 5.2 per cent during the the first nine months of 2012 as compared with the corresponding period of 2011, driven largely by a 19 per cent increase in China’s apparent usage. China accounted for 43 per cent of world usage over this period. As a result the refined copper balance for the first nine months of 2012 points to a deficit of 594,000 tonnes, which was more than a third of refined copper production with capacity utilised to the extent of 80 per cent. While slowing growth in China may have led to accumulation of inventories, the market is indeed tight. According to the Economist Intelligence Unit, copper will be the strongest performer among metals in 2013, with prices rising by 12 per cent thanks to the supply-demand balance.

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The Review of Keynesian Economics: Launch of New Journal

Thomas I. Palley, Louis-Phillipe Rochon and Matías Vernengo

It is widely recognized that economic crises can trigger enormous change, with regard to both economic theory and the politics of governance. Today, the global economy is struggling with the fall-out from the financial crash of 2008 and the Great Recession of 2007–2009. The economic crisis that these events have generated, combined with the failure of the mainstream economics profession, has again put the question of change on the table. Reasonable people do not expect economists to predict the daily movements of the stock market, but they do expect them to anticipate and explain major imminent economic developments. On that score, the profession failed catastrophically, revealing fundamental theoretical inadequacies.

This intellectual failure has prompted us to launch the Review of Keynesian Economics (ROKE), the first issue of which is fully available here. At a time of journal proliferation, some may wonder about the need for another journal. We would respond there is a proliferation of journals, but that proliferation is essentially within one intellectual paradigm. As such, it obscures the fact that the range of theoretical inquiry is actually very narrow. A journal devoted to Keynesian economics is therefore needed, both to correct this narrowness and because events have once again confirmed the profound relevance of Keynesian theory. As noted by Robert Solow, a member of the board of ROKE, our project is “counter-cultural, and god knows the current culture needs to be countered.”

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Responding to Financial Crisis: Are Austerity and Suffering Inevitable?

Jayati Ghosh

All too often people in countries experiencing financial crisis are told that the road to recovery necessarily involves pain, that fiscal austerity and cuts in spending that adversely affect the lives of ordinary citizens are necessary costs of correction of macroeconomic imbalances and the consequent adjustment that is considered essential for recovery. This is repeated so often that it is now taken as received wisdom by policy makers and civil society alike – yet in fact it is not true at all. It can actually be plausibly argued that in several situations the reverse is correct, that attempts to reverse economic downswings through cuts in public spending are counterproductive and makes matters much worse. This is clearly evident for all to see in the case of crisis-ridden countries in the eurozone, for example.

And there are also positive counter-examples, that show how taking into account the concerns and requirements of ordinary citizens (and paid and unpaid workers in particular) can work as a positive macroeconomic strategy that actually provides a route out of crisis. Sweden provides an example of a country that responded to the financial crisis by explicitly recognizing and attempting to reduce the pressures on workers, and particularly women workers whose needs are often the last to be considered in such periods of crisis. Sweden incorporated measures to maintain or ensure favourable conditions of women’s work and life into its broader economic recovery strategy.

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Clouds Over Solar

Sunita Narain

India’s solar power policy is now entering round two. And there is much that needs to be reviewed and reworked as the business of solar energy has seen massive turbulence in India as well as globally. In the first phase (2010 to 2013) of the Jawaharlal Nehru National Solar Mission (JNNSM) the target was to set up 1,000-2,000 MW of grid-based solar power in the country. By 2013, the country has indeed commissioned some 1,000 MW of solar power, but 700 MW of this target comes from the non-JNNSM state of Gujarat.

The next phase of the national solar mission kicks in from 2013. The Union Ministry of New and Renewable Energy has set a target of 9,000 MW of solar power by 2017, of which 5,400 MW will be paid by cash-strapped states. But three years is a long time in this fast-moving business. There have been drastic changes—for the good and the bad—in this sector since the mission began in 2010.

First, the good news: the price of solar energy has come crashing down in the past two-three years. In November 2010, when the first tender for solar photovoltaic (PV) power was opened, the lowest tariff was Rs 10.85 per kWh. A year later in December 2011, when new bids were opened, the tariff was down to Rs 7.49 per kWh. This makes solar energy attractive as it is now close to grid parity, with energy utilities buying power at Rs 4-5 per kWh.

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Lies, Damn Lies, and the Economist

Matias Vernengo

The World in 2013 by The Economist has been out for a while. Got it at the airport this weekend and read a few pieces. Really bad. Nothing new. One piece caught my attention though. On the fiscal cliff and the elections this terrible article says:

“Mr Obama will maintain that his victory, along with continued Democratic control of the Senate, constitute a mandate for his version of deficit reduction. But in fact the elections produced mixed results: Mr Obama narrowly won the popular vote and the Republicans retained their majority in the House of Representatives.”

First, facts; yes the GOP won the House, but Democratic House candidates won more of the popular vote than their Republican counterparts. Redistricting or Gerrymandering is what explains this failure of democracy. Dems probably need more than 55% of the popular vote to win the majority in the House.

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Jon Stewart Was Right

Gerald Epstein

Among the critical problems that were pushed aside by the “fiscal cliff” negotiations between President Obama and Congressional Republicans, none are more pressing – or more intertwined– than the criminally high rate of unemployment still plaguing the country and the massive debt overhang faced by underwater homeowners.

While President Obama, the House Republicans and billionaire-financed conservative pundits, economists and “think” tanks shriek about unsustainable debt and deficits, official unemployment languishes at 7.8% percent, while millions of Americans are struggling with underwater mortgages and many are facing foreclosure. We confront this perverse set of priorities despite the fact that, as Robert Pollin has repeatedly pointed out, U.S. government interest payments on public debt as a share of federal outlays is at an extremely low level of 7.7%, about half the level as when Ronald Reagan was President.

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Fears, ideologies and rational solutions to the European debt crisis

Carlo Panico and Francesco Purificato, Guest Bloggers

The media and some professional blogs are spreading the view that the European debt crisis is caused by the decision of the political authorities of the countries under attack to let their citizens live beyond the material possibilities of the economy. They advertise the unfounded fears that the taxpayer of the other euro-countries is becoming the victim of a money machine that rewards the profligacy of Southern European countries. As shown in our PERI paper The debt crisis and the ECB’s role of lender of last resort, these fears have become powerful political forces inhibiting rational solutions.

When the crisis began in April-May 2010, the Greek sovereign debt was around 300 billion euros and it was sufficient to buy a portion of it to persuade the markets that the authorities were determined to stabilise the interest rates. Yet, in spite of its independence, the ECB waited the end of the regional elections of May 9 in Renania-Westfalia (Germany) to respond to the speculative attacks, which had gambled on the view that the European authorities would not react until the election had ended.

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