Maine Farmers and Climate Change, Part II

System Change

Stephanie Welcomer, Mark Haggerty, and John Jemison, Guest Bloggers

This is part II of a two-part series, excerpted from an article originally published in the March/April issue of Dollars & Sense. The full article is available here.

Systems theorists, who study how organizations and systems change, offer some insight into farmers’ minimal recognition of climate change, and their lack of advocacy for climate-mitigation policy. Management scholar Connie Gersick describes systems—such as the farming sector—as being in equilibrium until fundamental factors change.

One key factor can be “environmental changes that threaten the system’s ability to obtain resources.” As the system’s actors are faced with persistent, systemic problems, they experience mounting discomfort. Once key actors recognize that the system has become dysfunctional, they begin to search for new information about the sources of the problems and possible new steps. Newcomers enter the system and are enlisted or inspired to search for solutions. The entrenched understandings, relationships, and power dynamics of the system, finally, can be dismantled. Revolutionary change can happen and a new system can be created.

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IMF and World Bank Spring Meetings: Missing the Big Picture?

Jesse Griffiths and Tiago Stichelmans, Guest Bloggers

The IMF and World Bank spring meetings, which used to be a major forum for global economic decision making, end today with few concrete outcomes, the Bank under fire for its human rights and environmental record, and the IMF still unable to make any progress on reforming its creaking governance structure.

Finance ministers and central bankers from all over the world met in Washington DC this week for the IMF and World Bank spring meetings. The concerns caused by slowing growth in emerging market economies, collapsing commodity prices, and uncertainties over the future of monetary policies in the developed world were very real. Action to deal with them was not. Instead, all the IMFC – the ministerial committee that oversees the IMF – could promise was “vigilance” when dealing with “large shifts in exchange rates and asset prices, protracted below-target inflation in some economies, financial stability concerns, high public debt, and geopolitical tensions”.

The centrepiece of discussions for this year’s meetings was supposed to be the critical upcoming United Nations summit on Financing for Development (FfD), slated for July in Addis Ababa. However, the background document prepared by the World Bank and five regional development banks did not tackle the breadth of structural issues that are on the FfD agenda. It reads more like a prospectus for increasing use of the banks that authored it.
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Maine Farmers and Climate Change, Part I

How Do Farmers See It?

Stephanie Welcomer, Mark Haggerty, and John Jemison, Guest Bloggers

This is part I of a two-part series, excerpted from an article originally published in the March/April issue of Dollars & Sense. The full article is available here.

Maine’s farmers are facing unprecedented challenges stemming from climate change, centered on the two key ingredients in agriculture—water and soil. Too much water can wash soil away, while too little limits crop production and dries the soil out. According to the University of Maine report Maine’s Climate Future, the “high-intensity rainfall events” that are expected to accompany climate change are “less effective at replenishing soil water supplies and more likely to erode soil.” Meanwhile, higher average temperatures mean that, for a given level of precipitation, less water will actually be available to crops, due to higher rates of moisture loss from the ground and from the plants themselves.

As part of the 2011 “Assessing Maine’s Agriculture Future” study, we interviewed around 200 Maine farmers about changes in the climate and their expectations for the future of farming. We asked representatives and opinion leaders from a wide sampling of the state’s farming sectors about their reasons for farming, their concerns, and their hopes for the future, as well as changes in weather patterns and their related adaptations.

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Will BRICS Carbon Traders Bail Out the Bankers’ Climate Strategy? Part II

This is part II of a two-part series.

Patrick Bond

An overriding danger has arisen that may cancel the deterrents to carbon trading: the international financial system has overextended itself yet again, perhaps most spectacularly with derivatives and other speculative instruments. It needs new outlets for funds. The rise of non-bank lenders doing “shadow banking,” for example, was by 2013 estimated to account for a quarter of assets in the world financial system, $71 trillion, a rise of three times from a decade earlier, with China’s shadow assets increasing by 42% in 2012 alone. The Economist last year acknowledged that “potentially explosive” emerging-market shadow banking “certainly has the credentials to be a global bogeyman. It is huge, fast-growing in certain forms and little understood.” As for the straight credit market, the main result of Quantitative Easing policies was renewed bubbling, with $57 trillion in debt added to the global aggregate from 2007-14, of which $25 trillion was state debt. By mid-2014 the total world debt of $200 trillion had reached 286 percent of global GDP, an increase from 269% in late 2007.

Global financial regulation appears impossible given the prevailing balance of forces, witnessed in failures at the 2002 Monterrey Financing for Development initiative and various G20 summits after 2008. As a result, the BRICS are especially important sites to track ebbs and flows of financial capital in relation to climate-related investments, what with so many expansive claims made about their counter-hegemonic character. In reality, in relation to both world financial markets and climate policy, the BRICS are not anti-imperialist but instead subimperialist.

The first-round routing of CDM funding went disproportionately to China, India, Brazil and South Africa from 2005 until 2012, but by then the price of CDM credits had sunk so low there was little point in any case. Moreover, according to Carbon Market Watch, “The environmental integrity of the other Kyoto offsetting mechanism Joint Implementation is even more questionable with over 90% of offsets issued by Russia and Ukraine with very limited transparency and no international oversight.”

As Naomi Klein pointed out in This Changes Everything, gaming the CDM became a profitable sport: “The most embarrassing controversy for defenders of this model involves coolant factories in India and China that emit the highly potent greenhouse gas HFC-23 as a by-product. By installing relatively inexpensive equipment to destroy the gas (with a plasma torch, for example) rather than venting it into the air, these factories— most of which produce gases used for air-conditioning and refrigeration—have generated tens of millions of dollars in emission credits every year.”

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Winds of change in Asia

Martin Khor

In the last month, the international media has been carrying articles on the fight between the United States and China over the formation of the Asian Infrastructure Investment Bank (AIIB).

Influential Western economic commentators have supported China in its move to establish the new bank and judged that President Barack Obama made a big mistake in pressurising US allies to shun the bank.

The United States is seen to be scoring an “own goal” since its close allies the United Kingdom, Australia and South Korea decided to be founding members, as well as other European countries, including Germany and France, and most of Asia.

The United States also rebuked the United Kingdom for policies “appeasing China,” but the latter did not budge.

The United States did not give any credible reason why countries should not join the AIIB.

Treasury Secretary Jack Lew said the new bank would not live up to the “highest global standards” for governance or lending.

But that sounded like the pot calling the kettle black, since it is the lack of fair governance in the International Monetary Fund (IMF) and World Bank that prompted China to initiate the formation of the AIIB, and the BRICS countries (Brazil, Russia, India, China and South Africa) to similarly establish the New Development Bank.

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Bernanke and Summers on Global Savings Glut and Secular Stagnation

Matías Vernengo 

So Ben Bernanke is blogging now. He has basically defended his old idea that interest rates are low as a result of a global savings glut. Yes, it is basically the loanable funds theory of interest—with no consideration of the limitations associated with the capital debates—and the notion that the supply of funds, mostly associated to surplus countries like China, Japan, Germany and oil exporters, has pushed interest rates down.

This is essentially the same argument on negative interest rates that Krugman has made awhile ago, and not surprisingly Krugman has been favorable to Bernanke’s post.*

In Bernanke’s view the solution for the savings glut is: “to try to reverse the various policies that generate the savings glut—for example, working to free up international capital flows and to reduce interventions in foreign exchange markets for the purpose of gaining trade advantage.” This would, presumably, move the investment schedule and lead to a recovery.

Bernanke uses the global savings glut idea to criticize Larry Summers’ secular stagnation story. For him:

[…] unless the whole world is in the grip of secular stagnation, at some point attractive investment opportunities abroad will reappear. If that’s so, then any tendency to secular stagnation in the US alone should be mitigated or eliminated by foreign investment and trade. Profitable foreign investments generate capital income (and thus spending) at home; and the associated capital outflows should weaken the dollar, promoting exports. At least in principle, foreign investment and strong export performance can compensate for weak demand at home.

I have criticized the global imbalances story before. As I noted then the actual problem is that the global imbalances are small. The empirical evidence for a external recovery on the basis of a more depreciated dollar is not convincing, but that is not the main problem with this argument. Both the secular stagnation as discussed by Summers, and the savings glut, as presented by Bernanke rest on the idea of an excess supply of savings, and a negative natural rate of interest. Summers says that the: “essence of secular stagnation is a chronic excess of saving over investment” and that “secular stagnation and excess foreign saving are best seen alternative ways of describing the same phenomenon.”**

The main disagreement between Bernanke and Summers is on the solution. Summers is skeptical about exchange rate depreciation as a solution to the US stagnation. In his words:

Successful policy approaches to a global tendency towards excess saving and stagnation will involve not only stimulating public and private investment but will also involve encouraging countries  with excess saving to reduce their saving or increase their investment.  Policies that seek to stimulate demand through exchange rate changes are a zero-sum game, as demand gained in one place will be lost in another.

And no the problem is not competitive depreciations, as Summers suggest. And not even a question of whether depreciation, the relative price substitution effect, would be enough to boost exports or reduce imports, which might be questionable (the last evidence I saw suggested that income elasticities tend to be larger than price elasticities, meaning that foreign trade responds more to changes in the level of activity), by the way. The problem is this notion that the solution is based on surplus countries spending more, as if the US does not have a privileged position and its external (and by the way domestic) deficits do not matter.

What Summers is saying is that depreciation does not work, but we need China and Saudi Arabia to boost the world economy. Seriously?! The US should be doing expansionary fiscal policy, and with that current account deficit would be even larger. The notion that there is a current account sustainability issue or that the dollar international reserve position might in danger is not particularly strong. But, at least on the policy issue, Summers is correct. Fiscal expansion is needed. Note, however, that there is no secular stagnation problem, associated to lack of investment opportunities. There is a political problem (remember Kalecki) that precludes more fiscal expansion.

* Krugman arguments were normally about the domestic economy, and the problem of the zero bound interest rate, or what he calls the liquidity trap.

** And there are too many problems with the excess savings story to discuss here. The investment schedule and the very existence of a natural rate of interest, negative or otherwise, is plagued by logical problems and by the complete lack of empirical evidence, since investment really reacts to changes in the level of activity (accelerator). Also, the notion that intertemporal decisions govern consumption behavior is not without its problems. That’s why Keynes tried to abandon the loanable funds theory and developed effective demand, in which income adjusted for differences between investment and savings.

Originally published at Naked Keynesianism.

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Will BRICS Carbon Traders Bail Out the Bankers’ Climate Strategy? Part I

This is part I of a two-part series.

Patrick Bond

The hope for our collective survival in the face of a likely climate catastrophe has been vested in a combination of multilateral emissions rearrangements and national regulation. But the premise behind the core strategy—the 1997 Kyoto Protocol—must be debated. Assuming a degree of state subsidization and increasingly stringent caps on greenhouse gas (GHG) emissions, Kyoto posited that market-centric strategies such as emissions trading schemes and offsets can allocate costs and benefits appropriately so as to shift the burden of mitigation and carbon sequestration most efficiently. Current advocates of emissions trading still insist that this strategy will be effective once the largest new emitters in the Brazil-Russia-India-China-South Africa (BRICS) bloc are integrated in world carbon markets.

As climate crisis looms ever larger on the horizon, the demise of the Kyoto Protocol’s binding emissions-cuts commitments on wealthier countries will in the near future compel from them a renewed effort to promote market-incentivized reductions. In spite of widely-acknowledged market failure in the emissions trade, especially in Europe, several “emerging markets,” especially the BRICS, have begun the process of setting up or expanding their carbon trading and offset strategies now that (since 2012) they no longer qualify for Clean Development Mechanism (CDM) credits. The Kyoto Protocol had made provision for low-income countries to receive CDM funds for emissions reductions in specific projects, but the system was subject to repeated abuse.

Yet attempts to resurrect market strategies will become more visible as the next global-scale climate treaty takes shape in December 2015 at the Paris summit of the United Nations Framework Convention on Climate Change (UNFCCC). Most notably, that 21st Conference of the Parties (COP21) is anticipated to remove the critical “Common but Differentiated Responsibility” clause that traditionally separated national units of analysis by per capita wealth.

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China and India in the World Economy

C.P. Chandrasekhar and Jayati Ghosh

Indian media – as well as several official representatives of the government – are full of excitement at the possibility that in the coming year India’s rate of growth of economic activity might actually be higher than that of China. It is not just that the extremely rapid growth of the giant Asian neighbour is slowing down substantially, but also that India’s GDP growth is projected to be higher than before, and the CSO’s latest revisions to the GDP estimates suggest that the recent deceleration was less sharp than generally perceived.

Chart 1: China overtook India in terms of share of world GDP only from 1979 onwards

ChandrasekharGhosh China India 1

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China’s Green Jobs—Cause for Celebration?

Sara Hsu

A recent report from the New Climate Institute finds that one million “green” jobs could be created in China, the United States, and the European Union by 2030 if these nations comply with their current pledges to reduce global warming. While the U.S. and Europe have functioning environmental regulation schemes, China’s environmental regulations are often unenforced. Given China’s struggle with basic environmental protection, can the nation really be on its way to creating thousands of “green” jobs?

The answer is yes, and in some ways China is ahead of the U.S. and Europe in this respect.  China had 1.7 million people employed in the renewable energy sector in 2012, according to the International Renewable Energy Agency (IRENA).  Many of these jobs are in the production of solar panels and wind turbines. Promotion of the “green” energy sector has been spurred in large part by the Renewable Energy Law of 2005, which requires the state to give priority to the utilization of renewable energy throughout China.  This means that power companies are required to purchase energy from the renewable sector.

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Why did Commodity Prices Move Together?

Manisha Pradhananga, Guest Blogger

Remember the 2008-11 food price spike? It led to food riots in many parts of the world and increased the number of malnourished people by 80 million worldwide (USDA 2009). What many people don’t know about the price spike is that besides the rise in magnitude, it was distinctive for the breadth of commodities affected. Prices of a wide range of commodities including agricultural (wheat, corn, soybeans, cocoa, coffee), energy (crude oil, gasoline), and metals (copper, aluminum), all rose and fell together during this period.

Pradhananga 1

Source: IFS, commodity prices. Normalized by demeaning and dividing by standard deviation of each series

It is not unusual for prices of related commodities to move together; if two commodities are either complements or substitutes in production or consumption, then a demand or supply shock in one commodity market may be transmitted to the other. For example, prices of certain industrial metals may move together if they are jointly used to produce alloys. Similarly, prices of grains such as corn, wheat, rice, and barley may move together if they are substitutes in consumption. However, commodity-specific shocks cannot explain co-movement of unrelated commodities, like the one observed in 2008-11 (Gilbert 2010, Frankel and Rose 2009). Many of the factors that were initially given as explanations for the price spike—such as drought, or the use of corn and oil-seeds to produce biofuels—are thus unable to explain this rise in comovement between commodity prices. Only factors that can affect many commodity markets simultaneously can be considered as explanations. In a recent paper, I focus on one of these factors, financialization of the commodities futures market, and explore the links between financialization and comovement.

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