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Colorado River: “Lifeline of the Southwest” Suffering Effects of Economic Growth and Climate Change

Published by Anonymous (not verified) on Fri, 02/10/2020 - 5:37am in

By Haley Demircan

The Colorado River, also known as the “Lifeline of the Southwest,” spreads along 1,450 miles (2,330 kilometers), from northern Colorado to the Gulf of California in northwestern Mexico. This legendary river provides water for 40 million people in cities such as Denver, Phoenix, Los Angeles, Las Vegas and San Diego, as well as millions of acres of vital farmland. Seven states rely on the Colorado River as a primary source of water. But as economic growth and climate change ensue, there is major cause for concern regarding depletion and the impacts of climate change in the Colorado River basin.

Colorado River Basin

The Colorado River system covers a huge expanse of the American Southwest. Image: sri lanka dating womens, Credit: USGS)

Whether residents of the Southwest are using water from the river or groundwater, they are withdrawing the region’s most vital resource much faster than it can be replenished. In other words, the Southwest’s water-use challenges constitute a textbook case of a not-so-steady state economy.

The Effects of Climate Change

Over the past century, regional temperatures have risen 1.4 degrees Celsius and water usage has increased, both of which are a function of a growing, environmentally-destructive GDP. Researchers Chris Milly and Krista A. Dunne at the United States Geological Survey (USGS) published a study in March 2020 using a hydrologic model and historical observations to demonstrate that the decrease in water flowing through the river is due largely to the evapotranspiration associated with climate change.

Global warming drastically affects the snowpack that feeds the river. As temperatures in the region rise, more winter precipitation falls as rain rather than snow. Snow cover declines, causing the land to become exposed and dry. Without this snow cover, less energy from the sun is able to be reflected back through the atmosphere into space. Instead, it becomes trapped and warms the surface of the earth. Furthermore, plants need more water when temperatures rise. Just in the last century, waterflow from the Colorado River dropped 20 percent, and half of that percentage is from climate change. This reduction of water has left the two largest reservoirs in the nation, Lake Mead and Lake Powell, which were completely full in 2000, almost half empty. From 2000 to 2004, both had lost enough water to supply California with five times its Colorado River water.

With further global warming, Milly and Dunne estimate that the river will be depleted another 14-26 percent by 2050. They stated that more than half of this depletion is attributable to higher temperatures. As this trend in increased temperatures continues, the risk of severe water shortages for the millions of people who rely on the water from the Colorado River will grow.

The higher end of the percentage of depletion would mean a loss of about 1.5 million acre-feet of water—or 326,000 gallons of water—which is enough water to cover an acre of land about one foot deep. With temperatures on the rise and rainfall and snowpack declining, it is impossible to keep up with the water demand. In an interview with CNN, Brad Udall, a climate scientist at Colorado State University, warned, “Without this river, American cities in the Southwest would dry up and blow away.”

River basin study

Water supply and demand for the Colorado Rover. Credit: March 2016 Report by U.S. Bureau of Reclamation.

The Drought Contingency Plan

With the 19-year-drought affecting the Colorado River basin, all seven basin states had to come up with a plan. In an effort to keep the levels of the two major reservoirs from becoming critically low, they created the drought contingency plan (DCP). All seven states signed the DCP for the Upper and the Lower Colorado River basins. The plan is actually a set of specialized plans unique to each state and designed to help stabilize the river system and reduce the risk of reservoirs falling to critically low levels.

The Arizona drought contingency plan goes into effect when levels in Lake Mead reach 1,090 MSL (mean sea level). Currently, Lake Mead is 1,085 MSL. Arizona is only allotted 37.3 percent of the Colorado River’s lower basin water, and the state will receive a drastic decrease in water resource as the DCP and cutbacks are managed, from 2.80 million acre-feet per year to just over a million acre-feet per year.

Ground Water Depletion, Farmland Abandonment, and Economic Impacts

In an effort to source water elsewhere, Arizona is now relying on ground water aquifers, which is not a viable solution for the future. These aquifers provide corporate farms the ability to grow as much food as possible in a short time frame. Using ground water in this way depletes the underground, fresh water much too quickly. Water depletion in Arizona has caused several issues in the past, such as land abandonment, earth cracking/collapse, and major dust storms.

Lake Mead

Recent photo of Lake Mead showing an alarming drop in water level. (Image: sri lanka dating womens, Credit: USGS)

In Pinal county, Arizona, farmers are experiencing a lack of water resources. With the new DCP, farmers have lost two-thirds of the irrigation water they had been receiving from the Colorado River. They are now relying on groundwater; however, drilling and pumping groundwater is costly, and many farmers cannot afford the large increase in the cost of water for their farmlands. Ashley Hullinger, a research analyst from the University of Arizona, conducted a water loss study specifically for Pinal Country, and she found that there could be enormous economic repercussions if ground water depletion continues at this rate.

With the loss of 300,000-acre feet of water, the study found that there would be:

  • $63.5 million to $66.7 million lost in gross farm-gate sales (this accounts for 7 percent)
  • $94 million to $104 million lost in total county sales (farm and non-farm sales)
  • $31.7 million to $35 million lost in county value added (this includes net farm income, profits in other industries, employee compensation and tax revenues)
  • 240 to 480 full-time and part-time jobs lost

Depleting water from underground aquifers at high rates provides a small solution to the large cut in the Colorado River water allocation; however, there are severe consequences to the land as well as the economy.

Where do we go from here?

With temperatures on the rise due to climate change, there is no doubt that water depletion will occur. The next steps in the DCP are critical in reducing the risk of further shortages. One long-term goal is for reservoirs like Lake Mead and Lake Powell to replenish and hopefully allow for the water flow to increase in the Colorado River. Scientist like Udall, believe that the only way to save the Colorado River is by addressing what he considers the root cause of the problem—climate change. We might add an even deeper root: the GDP growth that drives greenhouse gas emissions and climate change.

“The science is crystal clear—we must reduce greenhouse gas emissions immediately,” he says. “We now have the technologies, the policies and favorable economics to accomplish greenhouse gas reductions. What we lack is the will.”

We’re not so sure about the “policies and favorable economics” part. While the microeconomics of installing renewable energy facilities may be more favorable, we still have pro-growth policies that ensure not only more renewable energy technology, but dipping further into the wells and deposits of fossil fuels.

 

Haley Demircan is CASSE’s fall journalism intern.

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You don’t have to live like this – review of Kate Soper’s Post-Growth Living

Published by Anonymous (not verified) on Wed, 09/09/2020 - 10:54pm in

In Post-Growth Living: For an Alternative Hedonism, Kate Soper calls for a vision of the good life not reliant on endless economic growth and points us to the ways in which our current patterns of living are not only environmentally harmful, but also make us miserable. This is a provocative and necessary book that provides us with the means to rethink consumption, work and sustainable prosperity without losing sight of what makes us feel good, writes Nick Taylor.

What kind of changes will the Covid-19 pandemic bring about over the long-term? While this question is on the minds of many, for those who study and work towards making our societies and economies more sustainable it brings particular concerns. Global emissions have seen a record-breaking drop during the pandemic, but not enough to slow the overall trend in atmospheric CO2 concentration, which reached its highest ever level in May, and not even enough to bring us close to meeting the 1.5C global warming target. How we respond to and attempt to recover from the deepest recession on record in a way that is not simply about restoring GDP growth is a question that should involve us all.

For critics, the pandemic has made an easy but misleading target of the post-growth or ‘degrowth’ movement. They falsely equate the social and economic devastation wrought by coronavirus with the planned, long-term downscaling of society’s throughput (the materials and energy a society metabolises) that degrowth advocates argue for. Sceptics of ‘growth as prosperity’ do not want a recession, or, as is looking increasingly likely, a depression. Indeed at their most compelling, arguments for moving beyond growth as an overarching economic, social and political goal draw on the promise that a sustainable society can and should be a better, more equal and more prosperous society.

Kate Soper’s latest book, Post-Growth Living, makes an essential contribution to this promise by exploring the ways in which countering capitalist consumer culture can make us feel better, bring us together socially and deliver a more just, sustainable, economy and society. Soper’s concept of ‘alternative hedonism’ uses the foil of our existing disaffection with consumerism, social atomism and work-induced time scarcity to prefigure more fulfilling ways of living within ecological limits. Even amongst the more affluent, these seeds of desire for more time, connection and care might point their way to alternatives. We see this manifest, for example, in the various niche communities seeking to ‘downshift’, simplify and ‘minimalise’ their lifestyle, or even ‘retire early’.

To support alternative hedonism on a more widespread and equitable basis, the book argues that something like a four-day working week is necessary. Not only would it reduce stress and improve our physical and mental wellbeing, it would have the effect of reducing dependency on market provision for our needs. Instead of buying into the pre-prepared time-saving meals we see advertised on our commute, for example, we’d have time to take pleasure in cooking. The distribution of, and right to, free time has been overlooked in egalitarian theory and research points to the case that working time regulation would have a more egalitarian effect than other radical policies, like a basic income. The timid attempt to defend it as part of the Labour Party’s offering at the last general election tells us there is still work to be done to convince people of its merits.

Soper is Emerita Professor of Philosophy at London Metropolitan University and has written widely on environmental philosophy, the aesthetics of nature, theories of need and consumption and cultural theory. The positions she has defended across these fields shine through and strengthen her case in this book. Her nuanced arguments about basic needs we might establish as necessary to fulfil leads her here to “delineating an alternative structure of satisfactions”, rather than set out a shopping list of universal needs. But she has consistently argued against the relativist position on needs, which refutes the possibility of establishing ‘basic’ or ‘universal’ needs at all in favour of emphasising social and cultural difference. Here this allows her to set forth an argument for and give meaning to why we should struggle for alternatives that are already bubbling up. As she puts it, the book: 

engages with an actually emergent culture of contradictory feeling. It points to expressed interests in less tangible goods – more free time, less stress, more personal contacts, a slower pace of life and so on – as lending support to criticism of consumer culture’s narrow materialism.

Soper draws on Marxist approaches to environmental degradation but argues that they must reground themselves in alternative visions of living that, in particular, tackle the role of consumption and its ecological and social fallout. We are neither the sovereign individual, “consumer kings” of liberal thought, nor the unfree and manipulated drones that Critical Theory paints as the victims of commoditisation. Neither heroes nor dupes, as she puts it. We’re something all the more interesting and hopeful: reflexive in our consumption, and open to seriously changing our affective and emotional responses to incorporate ways of living and consuming that are more sensitive to issues of inequality, exploitation, degradation and waste.

Soper uses Raymond Williams’ notion of a ‘structure of feeling’ to note the not yet fully articulated or worked out nature of such reflexivity. Though formative, such feelings have resources to draw upon, particularly from history. Instead of techno utopian visions of the future – whether on the Right or Left of the political spectrum – Soper suggests we use “earlier romantic antipathies to modernity” to build, or rebuild, practices and spaces of alternative hedonism. This, however, calls for a cultural politics based on rejecting the regressive elements of traditional society – its gender politics, for example – but that captures a sense of what is lost, and what might be regained.

It is a shame that the book’s publication schedule has meant that it doesn’t comment on the coronavirus crisis. It gives us the tools to grasp the structure of feeling emerging around the positive outcomes of lockdown that some have experienced – volunteering and mutual aid, more time with family, a turn to less materialistic forms of creative production (sourdough bread, anyone?), new cycling and low-traffic infrastructure, the lack of grinding commute and office drudgery.

But, of course, there are many, many more ways in which this crisis is devastating and highlights and exacerbates existing inequalities. Surging online shopping has enriched the barons of the platform economy, as has the structure of Covid-related bailouts. Conviviality must take place at a distance of two metres. Far from heralding a modal shift to walking and cycling (there has been some) it has seen plummeting use of public transport and rocketing private car use. The discovery of the ‘great outdoors’ depends on having access to the ‘great outdoors’. More flexible work can be beneficial, but it depends on who has control over it and how it is distributed (and the distribution of other work such as caring responsibilities). Working from home is enjoyable for some, a nightmare for others and a privilege denied to many more because of the nature of their work. And of course, the question on many people’s minds will be whether they have work at all soon.

Perhaps we can be grateful that the crisis has brought some of these issues out into the open. Much like the broader question of degrowth, though, it hasn’t for the most part done so in the way that anyone would have desired. Any talk about the pleasures of living and consuming differently will have to pay close attention to the unequal access to pursuing such alternatives that the recent crisis has emphasised. There is a nagging worry that to leverage a structure of feeling won’t be enough, or come quickly enough, to attend to some of the social and ecological threats facing us. As Soper might point out, though, how should we imagine and pursue a greener politics of prosperity without articulating why it should have widespread appeal?

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Uncommon Sense—The Foreword

Published by Anonymous (not verified) on Fri, 04/09/2020 - 5:25am in

By Brian Czech

© 2020, Steady State Press
ISBN: 978-1-7329933-0-3
Format: Paperback

Editor’s Note: This foreword is an excerpt from the Steady State Press’ forthcoming book, Uncommon Sense: Shortcomings of the Human Mind for Handling Big-Picture, Long-Term Challenges by Peter Seidel. Preorder a copy now.

I first encountered Peter Seidel at a Society of Environmental Journalists conference in Wisconsin. Or perhaps it was a conference of the U.S. Society for Ecological Economics in New York. Neither of us recall for sure, but we both noticed one thing: Our paths crossed regularly during that first decade of the 21st century. Not only did we find ourselves at the same conferences, but in the same sessions and in the same conversations—and invariably on the same side, in the event of controversy or debate. Most notably, we both recognized limits to growth and the fundamental conflict between economic growth and environmental protection.

Now, I have the privilege of penning the foreword for the latest in a string of salient books in which Seidel offers a lifetime of wisdom on the “big-picture, long-term challenges” facing humanity.

Seidel is an elder statesman of limits to growth, and he had been researching, writing, and conferencing on the relevant topics for decades before I came along with my specialty on the conflict between economic growth and biodiversity conservation. Biodiversity was big in the 1990s and early 2000s; bigger than climate change in academia and in the environmental movement. By then, though, Seidel had seen it all: DDT, a burning Cuyahoga River, Love Canal, the destruction of the ozone layer, coral bleaching, endangered species, resource shortages, and wars too numerous to speak of. Biodiversity loss and climate change were just two more insults—albeit huge ones—heaped upon a planet subjected to rabid GDP growth.

Seidel took an interest in my muffled efforts—with me in the silenced depths of the U.S. Fish and Wildlife Service at the time—to raise awareness of the trade-off between economic growth and environmental protection. He was one of the first 50 signatories of the CASSE position statement calling for a steady state economy, along with the likes of Herman Daly, William Rees, and Richard Heinberg. He was a no-nonsense, sound-science, non-fantasy futuristic thinker, and I took an interest in his work as well, reading several of his books and engaging in lengthy discussions with him on the future of America, the planet, and Homo sapiens.

I could see Uncommon Sense coming. I’d read There is Still Time, the predecessor book, and I knew Seidel had a rare, holistic sense of limits to growth. I was thrilled to hear of his interest in revising There is Still Time—which suffered from production problems and practically zero marketing—into a new book with an apropos title, updated data, and a solid plan for distribution.

Peter Seidel

Author Peter Seidel. (Credit: Gordon Baer)

With Uncommon Sense, I believe Seidel is at the peak of his game. It may seem a peculiar thing to say about an author in his 9th decade, but it’s true in my opinion, and here’s why: While Seidel’s penchant for prose was fully developed by the time he wrote, for example, Invisible Walls (Prometheus, 1998), his inquisitive mind only found more issues to integrate in the decades since. Uncommon Sense packs an impressive sweep of issues into such a compact book. No book that I’m aware of covers environmental, evolutionary, psychological, social, political, and religious subject matter into one cogent, flowing analysis from a limits-to-growth lens. Certainly not in less than a hundred pages!

The topics aren’t just packed in, though, like sardines squished into some unceremonious can. Seidel has something important to say about each of these topics. While some readers will have encountered similar lines of thought on some of the topics, few readers will fail to find something original, unique, or at least new to them in the pages of this prescient book.

It’s not that Seidel has all the answers, nor has he written the perfect book. (Who has?) As a student who studied the molecular basis of evolution as a supplementary topic during my Ph.D. research, I found the segments on the evolution of the human brain to be somewhat sketchy and lacking corroboration from human DNA analysis. Yet I also found myself thinking, “Maybe he doesn’t have the nucleotides mapped out, but how could he possibly be wrong?” The human brain would indeed have evolved the way he described; if not, surely we’d be behaving differently.

Seidel took on a daunting challenge in writing Uncommon Sense. The task he bore was not simply to journalize and lament on limits to growth, but to analyze, to penetrate, to dissect what it is about Homo sapiens that leads us to the limits as a moth to a flame. Why don’t we stop? Why should we? Can we?

The last question, of course, is the most challenging of all for any writer of such a sweeping book. In my opinion, Seidel provides a most refreshing approach. He doesn’t sugarcoat the answer. You won’t find any wishful notions of “green growth,” “mind over matter,” or “have your cake and eat it too” in Uncommon Sense. In his concluding chapter, Seidel comes clean on the prospects for the human race to handle the big-picture, long-term threats. The prospects, it turns out, are far from sure, easy, or even likely. It’s going to take some work, folks.

But then, humans have evolved to strive, to fight, and to work. We just need to apply a little more Uncommon Sense.

Brian Czech

Brian Czech is the Executive Director of the Center for the Advancement of the Steady State Economy.

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“Consumer Confidence” or Subtle Salesmanship?

Published by Anonymous (not verified) on Fri, 28/08/2020 - 12:14am in

By Brian Czech

Have you ever wondered about the odd pairing of “confidence” with “consumer?” Isn’t confidence supposed to reflect something more virtuous than your shopping cart? When you’re confident, you’ll be comfortable in your own skin, right? It’s all about who you are, not what your stuff is.

Confidence is supposed to play out in places like football fields, gymnastic events, stages, and maybe weddings, not shopping malls and dealerships. In its highest form, confidence melds into bravery. It takes some real confidence to break up a fight or charge into battle.

What kind of “confidence” is needed for buying shoes or iPads or even cars?

Grocery store

Empty aisle, just awaiting your “confidence.” (Image: sri lanka dating womens, Source)

Nor is confidence the same as bluster, arrogance, or braggadocio. In fact, confidence is most convincingly exuded in modest dignity. Boasting, on the other hand, indicates the opposite of confidence: insecurity, neediness, and, in the extreme, sociopathy (as “certain individuals” have demonstrated in recent years).

Well, that’s what the word “confidence” connotes for me, at least. I’m confident it would to most others as well. But let’s check the dictionary, just to be safe.

According to Merriam-Webster, the confident person is “full of conviction: CERTAIN.” That’s meaning #1, and highly relevant. The point I’m making, though, is driven home even more profoundly with meaning #2: “having or showing assurance and self-reliance.”

While Fish May Be Innocent, Odd Pairings Are Fishy

It’s true enough that we’re all consumers. Furthermore, each of us fall somewhere along the confidence spectrum. Therefore, as an adjective, confidence can be applied to consumer. “Consumer confidence” is grammatically sound. Yet I still don’t buy it (so to speak).

When’s the last time you heard talk of “fish innocence?” What about “hiker ambivalence,” or “singer colorblindness” or “dishwasher jocularity?” Presumably all fish are relatively innocent, and yes, all hikers fall somewhere on the spectrum of ambivalence, but who the hell cares? These subjects—fish, hikers, etc.—just don’t need to be described in terms of those (respective) adjectives! In each of the pairings the linkage is irrelevant at best and spurious at worst.

So, when I hear the phrase “consumer confidence,” I smell a fish. Something seems awry, and I have a vague sense of being in the polyester presence of salesmanship and propaganda. Other slick phrases come quickly to mind, such as “jumbo shrimp” and “green growth.” It strikes me that these slippery slogans tend to be oxymoronic, or at least ironic, and “consumer confidence” is no exception.


This fish is innocent. Is that relevant? (Image: sri lanka dating womens, Credit: USFWS)

Certainly the “self-reliance” aspect of confidence is quite at odds with consumption, unless perhaps we’re talking about the purchasing of some fishing line and a hook, on our way to the trout stream for dinner. But then we’re talking about confidence in fishing ability, not the ability to cast a credit card all the way across the counter. “Fisherman confidence” makes sense, and so might “consumer solvency,” but… “consumer confidence?”

The Conference Board and the CCI

The U.S. Consumer Confidence Index (CCI) was developed in 1967 as a measure of “optimism on the state of the economy that consumers are expressing through their activities of savings and spending.” The CCI is measured monthly by The Conference Board, based on a five-question survey issued to 5,000 Americans. Essentially, “confidence” is indicated when (based on the survey) consumers are likely to be spending more than saving.

The CCI is supposed to be a planning tool for manufacturers, retailers, banks, and government. If it’s rising, for example, the retailer may decide to invest in more locations and higher inventory. It’s a bit of an odd duck in the world of economic indicators, though. Investopedia gushes about it as “A Killer Statistic,” yet its predictive value is questionable, and most sources (including another Investopedia site) view it as a lagging indicator. In other words, it’s more of a rear-view mirror than a telescope to the future.

I’m less interested in its merits as leading vs. lagging than in the derivation of the name! One can’t help but suspect that the phrase was coined in some Madison Avenue conference room with the blessing of the New York Stock Exchange, the Federal Reserve Chair, and the Koch Brothers. These folks are always thinking of the margin, looking for any pro-growth influence they can possibly sneak into the system. Just imagine the scheming… “I know,” said one of them, “Let’s call it ‘consumer confidence’ and get it all over the airwaves. Nobody likes to be a chicken; people will start thinking of spending money as a way to show their bravery, by God.” [Guffaws all around.]

I jest, I guess, but the phrase “consumer confidence” clearly reflects a bias toward consumption in the business world and the economics profession. If they really wanted to know about the prevalence of spending (vs. saving), the indicator could have simply and neutrally been called “spending” (as a lagging indicator), “spending likelihood” (as a leading indicator), or even the Keynesian “propensity to consume” (as an all-purpose indicator). And, of course, they could have used “consumer optimism” (straight out of the very definition), with its less normative connotations. Instead, they attached an always desirable condition—“confidence”—to the mere act of consumption!

Madison Avenue

Madison Avenue: “Consumer confidence” branded here? (Image: sri lanka dating womens, Credit: Leif Knutsen)

Actually, there is an economic indicator called “consumer spending.” It’s no mere psychological pulse, either; it’s the outright expenditure on goods and services by households. It’s monitored by the staid Bureau of Economic Analysis and, as a key variable in the calculation of GDP, it’s been around far longer than the CCI. Why wouldn’t that suffice? Why did we need a “Conference Board” to send out surveys on “feelings”?

So, while I’m not advancing a conspiracy theory, I still think there was an element of marketing, salesmanship, or PR in launching the “consumer confidence” paradigm. The CCI may seem like an objective indicator, but it’s designed to steer our subjectivity into a sense that spending is a good thing.

What’s Wrong with Saving, Anyway?

I’d be tempted to say, “Real men save,” but why tempt fate in the minefield of gender politics? You get the picture, though. Being a consumer has nothing to do with confidence. If anything, it’s the other way around: The more confident you are in your own skills, abilities, and general presence, the less stuff you need to show off, make you look better, or help you perform. “Non-consumer confidence,” we might call it.

Furthermore, if we associate consumption with the admirable thing to do, then where does that leave saving? Have we been led into a twisted choice between “consumer confidence” and “saver sheepishness?” When did saving become so frowned upon? What happened to Benjamin Franklin’s wise old adage, “A penny saved is a penny earned?”

Mountains

Inspiring landscape, spared via saving. (Image: sri lanka dating womens, Source)

Without getting into the philosophical depths of Franklin’s particular meaning(s), we have to acknowledge that “saving” means many things among many people. For the conventional, neoclassical, 20th century economist, “saving” meant little more than deferring consumption—so more could be consumed later!

For advancing the steady state economy, though, saving has entirely different connotations. After all, the steady state economy is all about stabilizing the level of consumption. The most prominent connotation of “saving,” then, is as an antonym to consumption. The saver foregoes consumption in order to…forego consumption! The income saved can be used for various other purposes: a rainy day, favorite charity, reduction in work hours, political investment, and other non-goods and non-services that don’t bloat the GDP.

Steady statesmanship, then, rejects the notion of “consumer confidence,” favoring concepts such as consumer conscientiousness, consumer frugality, and even “saver sagacity.” Sagacious savers understand they are saving far more than money. A penny saved—not spent on “consumer goods”—is a penny’s worth of planet earned. (Or at least spared.)

Brian Czech

Brian Czech is the Executive Director of the Center for the Advancement of the Steady State Economy.

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The Silver Lining of the COVID-Caused Recession is Fading Fast

Published by Anonymous (not verified) on Fri, 21/08/2020 - 5:04am in

By Madeline Baker

From February to mid-April 2020, in an early and shocking stage of the COVID-19 pandemic, greenhouse gas emissions plummeted worldwide. Nowhere was the reduction more notable than in China, the country with the highest emissions. According to Lauri Myllyvirta, the lead analyst at the Centre for Research on Energy and Clean Air, China’s carbon dioxide emissions fell by 25 percent from the end of January through mid-February. Also, for the month of February, average coal consumption at power plants fell to a four-year low, and oil refinery operating rates fell to the lowest level since fall of 2015. This translated to lower levels of nitrous dioxide in China; NO2 levels the week following the Chinese New Year were 36 percent below what they were for the same week the previous year. Meanwhile liquid fuel consumption was 20 to 30 percent lower in March 2020 than in March 2019.

 

NASA tweet demonstrating COVID-caused reduction in CO2 emissions.

 

Along with reduced carbon emissions, industrial output in China reportedly fell by a whopping 13.5 percent in January and February from the previous year. This translated to an economic contraction of 6.8 percent (annualized rate) for Q1, the first quarter since 1992 with declining GDP! Beijing was so taken aback that, for the first time in 30 years, China has no annual growth target.

Given the clear and significant benefits of the shutdown, not just for China but for the global ecosystem, it seems more than logical to ask: Should China, or any other nation for that matter, be striving for pre-pandemic GDP figures, and thenceforth further growth besides? Why shouldn’t our nations, more or less “united” under a UN charter, focus instead on combating the next deadly crisis, or protecting the environment, or the diplomacy of peacekeeping?

Unfortunately, these questions are becoming moot, especially for China, which is already ramping up to pre-pandemic industrial capacity. The Chinese appear to be focusing heavily on power generation, increasing capital spending on utilities by 14 percent from January-May compared to the same period last year, “even as overall capital spending fell by 6 percent.” China also consumes more coal than any nation by a large margin, and accordingly saw carbon dioxide emissions four-to-five percent higher in May of 2020 compared with May of 2019 as the post-lockdown economic push kicked into high gear. Fortunately, the May spike in CO2 emissions appears to have been temporary, abating in June and allowing for projected overall emissions for 2020 to remain 6 percent below 2019 levels. Still—a six percent reduction in emissions is a far cry from the initial 25 percent drop we saw during the lockdown period, and a far cry from the kind of reduction we need for serious mitigation of climate change.

Sustainability experts such as Vinod Thomas for the Brookings Institute are urging the public to view the COVID-19 disaster as akin to an environmental crisis, most notably climate change. Bill Gates makes a similar argument. Globally, the death toll from COVID-19 has surpassed 790,000. We cannot know how many will ultimately die from COVID-19, but we do have estimates for the number of deaths already caused by climate change. The World Health Organization, for example, estimates that 150,000 deaths per year are attributable to climate change, and this number will only continue to rise over the next few decades as we’re locked into the momentum of global warming. Shane Skelton, former energy advisor to U.S. House Speaker Paul Ryan, warned that climate change “will be just as bad as coronavirus when we’re really feeling it.” Is anybody listening?

Out of Sight, Out of Mind

For virtually all of modern history up until the outbreak of COVID-19, society has functioned primarily in a growing economy (all the while headed toward limits to growth). Since the outbreak, however, society’s priority has been public health. With this common good as a powerful motivator, people have been making lifestyle changes they would have previously never considered, such as social distancing, wearing masks, and avoiding close contact with family members. Unfortunately, it took a healthy dose of panic and, in many cases, government mandates for individuals to shift their priorities and act accordingly.

Typhoon and climate change

The devastating effects of typhoon Haiyan on the Philippines. Another result of man-made climate change killing thousands of people and leaving millions homeless. (Image: CC BY-SA 4.0, Credit: Lawrence Ruiz)

So, why is it that despite a large body of evidence warning us of the impending climate crisis, we have been unmotivated to mitigate it? Common sense should reveal that the ecosystem is just as vital a common good as public health, but for many of us in wealthier countries, and particularly in urban areas, the natural environment is somewhat “out of sight, out of mind.” The number of people we find suffering from the effects of climate change is much lower compared to the number of those we know who are sick or dying from COVID-19. While the virus is widespread throughout socioeconomic classes, climate change adversely affects lower-class communities and people in developing countries first and worst. As noted in a study published by the Center for Global Development, “Climate change will be awful for everyone but catastrophic for the poor.”

Further exacerbating the ignorance of the developed world, and especially in the U.S. government, are the vested interests of many powerful players causing climate change. While corporations and political representatives who initially downplayed the effects of the virus have had to renege on their statements due to the massive economic shutdown, the energy majors have been monkeywrenching U.S. policy pertaining to greenhouse gas emissions. For example, Big Oil spent “more than $2 bn…lobbying Congress on climate change legislation between 2000 and 2016.” Expenditures like this make it seem unlikely that we can expect behavioral mandates—federal or state—to mitigate climate change anytime soon.

Sweeping Systemic Change Needed Now

The science is clear and bolstered by evidence from the COVID-caused recession in China: There is a fundamental conflict between economic growth and environmental protection. Recent months have confirmed that a return to our pre-pandemic lifestyle means a return to unsustainable resource extraction and emission rates. Not only have efforts to get the global economy “back on track” come with “compromising global investments in clean energy and weakening industry environmental goals to reduce emissions,” but other lifestyle changes to avoid the virus threaten serious regression in terms of environmental protection. For example, more people are choosing to drive to avoid contracting COVID-19 on public transit, and single-use plastic has become significantly more prevalent in restaurants and food-delivery services as they struggle to keep up with sanitation guidelines.

It’s hard to get enthused about “reduce, reuse, recycle” when we are told that every surface we touch may be contaminated with a deadly virus. Even reverting to pre-pandemic waste practices, which weren’t very sustainable to start with, could take re-education on a massive scale. It just wasn’t wise to get boxed into this corner; up hard against limits to growth.

The global infrastructure vulnerabilities that have been exposed in the struggle to combat the novel coronavirus reveal one thing for sure: Tackling climate change, one of many growth-induced environmental problems, requires an even more systemic approach than recovering from COVID-19. The only solution to these problems is a comprehensive policy shift, first by developed nations, toward a steady state economy, where population and consumption are stabilized within ecological constraints.

If we start to make the transition now, policy reforms could perhaps still be gradual and structured, without the chaos and suffering that comes with a macroeconomic supply shock. We need our leaders and institutions to acknowledge the conflict between economic growth and environmental protection now. Otherwise, we are unmistakably headed for more environmental breakdowns, pandemics, and long-running recessions.

Madeline BakerMadeline Baker is a former CASSE intern (spring 2020) and a senior majoring in International Economics and Finance at the Catholic University of America.

The post The Silver Lining of the COVID-Caused Recession is Fading Fast appeared first on pink dating app.


Miserable numbers

Published by Anonymous (not verified) on Fri, 31/07/2020 - 8:50am in

Even non-connoisseurs are reeling from the miserable second quarter GDP numbers released this morning. Between the first and second quarters of this year, GDP was off 33% after adjustment for inflation. That’s by far the biggest decline since quarterly numbers begin in 1947.

That 33% figure is at an annualized rate, meaning GDP would be off by a third if it declined at the second-quarter rate for a full year. The US is unusual in annualizing the data; most other countries report the quarter-to-quarter change without annualizing it. If we did that, it would have been off a mere 9.5%. But no matter how you slice it, it’s awful: more than three times as bad as the previous record, the first quarter of 1958 (a recession that helped elect JFK), and four times as bad as the worst quarter of the 2008–2009 recession, the fourth of 2008.

If you average the first two quarters of this year and compare them to the first two of last year, as the graph below does, you get by far the worst number since 1946, when the US was demobilizing after World War II. Aside from that, you’d have to go back to the Great Depression for bigger negative numbers.

GDP yty

As I’ve pointed out elsewhere, we never really recovered from the 2008 recession. Quoting that to save some keystrokes:

Had the economy continued to grow in line with its 1970–2007 trend, GDP would be about 20% higher than it is now. GDP is a deeply flawed measure; it says little about distribution or quality of life, but it is what the capitalist system runs on. Listen to any pundit or propagandist, and growth is what the whole set-up is all about. And by this most conventional of measures, American capitalism is failing badly on its own terms.

But that 20% shortfall was based on first quarter numbers; the second quarter took it close to 30%, as the graph below shows.

GDP vs trend

A near-30% shortfall works out to just over $18,000 per person. That’s an aggregate number; it doesn’t mean that we’d each be $18,000 richer had growth held to the old trend. There are things in GDP like investment and government spending that don’t translate into personal income—and since the rich have hogged most GDP growth over the last several decades, the average person would see little of that $18,000. But it is a measure of how much poorer we are as a society because of the economic troubles of the last decade.

Of the 33% annualized decline in GDP, 25 points came from personal consumption, three times the previous worst quarter (the fourth of 1950). That decline in spending came despite the huge boost to personal income provided by the $1,200 stimulus checks and expanded unemployment benefits; it looks like those who could saved their money out of fear it would soon be in very short supply. As the graph below shows, spending on recreation led the way down, off 94%; close behind were transportation, off 84%, and food services and accommodation, off 81%. Spending on clothing & footwear and gasoline & energy were also down hard. Amazingly, spending on health care was down 63%, as people postponed routine care out of fear of catching the virus.

PCE by category 2020Q2

The third quarter is unlikely to be this dire. According to the Federal Reserve Bank of New York’s GDP tracker, the third quarter is likely to see a sharp rebound—though that’s based largely on early July data. Things look to have slowed as the month progressed—and with the $600 supplemental unemployment benefits gone, at least for now, we could just flatline for a few months. Even if we see some recovery, the long-term damage—people disemployed, businesses shuttered, confidence hammered—will be substantial and lingering.

What a terrible time to be governed by callous morons.

Reflections on the current disorder

Published by Anonymous (not verified) on Wed, 29/07/2020 - 7:19am in

[This is the edited text of a talk I gave via Zoom, like everything else these days, sponsored by the North Brooklyn chapter of the Democratic Socialists of America. It reprises and updates several things I’ve written recently, but it’s hard to be original these days. Video will be posted, but who wants to look at me? The Q&A was quite good though.]

Before I get into the body of my talk, I want to celebrate our electoral victories and say how proud I am to be a member of DSA. If you’re not a member, please join. As someone who was a socialist throughout the dark days of the 80s, 90s, and 00s, let me say how great it is to see socialists in Congress and legislative bodies around the country, not to mention vast uprisings across the country. Onward to state power and social transformation!

Long ago I was a right-winger, fervently but briefly, and the title of this little talk, “Reflections on the current disorder,” was one that the dreadful old reactionary William F. Buckley used as his all-purpose evergreen when he was asked what he was going to talk about. Just a tasteless joke, sorry.

cyclical history

This is not your typical recession. Back in the old days, meaning three or four decades after the end of WW2, there was a textbook pattern to the business cycle. After a few years, an expansion would mature, the stock market would get exuberant and frothy, labor markets would tighten (meaning wages would start to rise more rapidly than the employing and owning class liked, because tight labor markets increase workers’ power), inflation would pick up, and the Federal Reserve would raise interest rates to provoke a recession. Stocks would decline, the overall pace of business would slow, unemployment would rise, and wage and price pressures would ebb. The employing and owning class would then feel better about the balance of forces, the Federal Reserve would lower interest rates, and recession would turn into recovery and expansion.

All that began to change with the onset of the neoliberal era forty years ago. The deep recession of the early 1980s crushed labor and led to a massive onslaught on unions and deep cuts in social spending. Wall Street went wild with takeovers and restructurings that led to job cuts, wage cuts, and speedup. The capitalist class, firmly in the driver’s seat, demanded higher profits and higher stock prices above all other priorities.

This has undoubtedly been a great time to be rich. But things haven’t been so great for everyone else. And the whole system got more unstable. Instead of the neat boom and bust cycle I described earlier, we had insane bubbles, reckless speculative manias that would end in crashes. The first was as the leveraging mania 1980s turned into the 1990s; the second, as the dot.com mania of the 1990s turned into the 2000s, and the third as the housing mania of the early 2000s ended in the 2008 crash. Each recovery from those crashes got weaker and weirder, with the very upper brackets making out like bandits and much of the rest of the population feeling like the previous recession had never ended.

The point of this compressed history is that the US economy was getting sicker for a long time. Neoliberalism, by which I mean the belief that markets should be insulated from any political influence and capitalists should be free to do as they please with little restriction, had seriously undermined the system’s integrity. (When I say insulation from political influence I mean of the humane sort. Intervention to make the rich richer, or bail them out when they hit a wall, was perfectly ok—encouraged in fact.) The competence of the state, military and police functions aside, were consciously eroded. Public investment was squeezed, and our physical and social infrastructure left to rot. Class and racial disparities in health widened along with income inequality and economic precarity. Debt levels kept rising, and the cult of maximizing stock prices meant corporations didn’t invest or hire. Many borrowed money just to buy their own stock to raise its price, leaving them in weak financial shape when this crisis hit.

systemic rot

This economic crisis is different from both sorts I’ve been describing. It’s not the garden-variety recession of the post-World War II decades, nor is it like the financial crises of the neoliberal era. It’s the result of mass illness disrupting normal economic life, making it impossible for people to work (though of course many were forced to at great peril) or shop or do all the things that keep the wheels of consumption and production spinning.

But this crisis hit a system that had been structurally weakened because of the systemic rot—the erosion of state capacity, declining health among a lot of the population, increasing financial fragility, inequality, precarity, and the rest. Fragility and precarity are widespread even in what are nominally “good” times.

According to an annual survey of economic well-being by the Federal Reserve—an institution that ironically shows more interest in the topic than most others in US society— done last October, when the unemployment rate was under 4%:

• 16% of adults were unable to pay their monthly bills in full, and another 12% said they couldn’t pay if they were hit with an unexpected $400 expense

• Over a third couldn’t meet an unexpected $400 expense either out of savings or using a credit card they’d pay off at the end of the month. The rest would either carry a credit card balance or throw up their hands in despair.

• One in four skipped medical or dental care because they couldn’t pay

• Almost one in five had unpaid medical debt.

These are averages. It will not surprise you to learn that white people did better than average, and black and Latino people did worse. For example, almost four in five white people were doing ok or living comfortably, compared with about two in three black and Latino people. You could turn that around, though: even in a relatively good year, one in five white people were barely getting by. Almost four in five straight people (yes, I was surprised the Fed asked this question) were doing at least ok, compared with two in three identifying as lesbian, gay, or bisexual.

dimensions of crisis

So that was the situation going into this hellscape. In June, the official unemployment rate was over 11%, three times what it was when the Fed took that survey last year. Unemployment had come down from a peak of almost 15% in April, as people were recalled to work, but that 11% is higher than any month between May 1941 and April of this year. It never got that high during the deep recessions of 1982 and 2008–2009. Under this definition of unemployment, you have to have looked for work in the previous month. If you broaden the definition to include people who’ve given up the job search as hopeless and those who are working part-time but want full-time, it was 18%. Though down from April’s peak, it’s still higher than at any point during the Great Recession of a decade ago.

And it looks like the late spring recovery has run out of steam. Well over a million people a week are still applying for unemployment insurance, and over 30 million are collecting benefits. Not quite half those beneficiaries are on the rolls because of expansion of eligibility to freelancers and other who would not have been eligible under traditional programs.

That expansion of unemployment insurance eligibility was part of the first pandemic relief package, the so-called CARES Act. The CARES Act also included a $600 weekly benefit on top of the normal state benefits. Benefits vary widely by state, ranging from $550 a week in Massachusetts to $215 in Mississippi. (Most southern states pay well under $300.) The national average pre-supplement was $342. So that $600 supplement made a huge difference to millions of people. It has now expired.

As I wrote last week in Jacobin, the unemployment insurance provisions of the CARES Act were the most generous welfare state measures in our ungenerous history. Job losses from late March onward resulted in steep declines in wage and salary income—almost twice as bad as the declines after the 2008 financial crisis and exceeded only by the onset of the Great Depression in the early 1930s. But those declines were more than offset by the huge increases in unemployment insurance benefits, along with the $1,200 checks. These payments were so large that personal income actually rose overall despite the giant hit to wage and salary income.

Personal consumption spending collapsed in late March and early April but stabilized almost the very day the CARES Act passed and began rising when the payments started flowing. According to near-real-time tracking of debit and credit card spending compiled by the Opportunity Insights project, led by the extremely energetic economist Raj Chetty, spending nearly recovered to pre-crisis levels by mid-June. (The graph below is updated from the one in Jacobin. Opportunity Insights is now reporting weekly, not daily, data.) Since then, they’ve begun to slip—and now that the $600 emergency payments have stopped, we can expect them to fall sharply.

Opportunity Insights spending 7-12

These numbers are, of course, aggregates. Lots of people almost certainly haven’t been so lucky. Many reported huge difficulties in filing for unemployment insurance because our systems are so antiquated. Bloomberg—the news service, not the billionaire ex-mayor—was out with a story earlier today that estimated that as much as a quarter of benefits went unpaid because of bottlenecks.

Despite the payments, food banks have been doing record business. According to a new experimental weekly survey from the Census Bureau, there’s been a decline of over 30 million people in the number reporting that they’re getting enough of the food they want. Most, 25 million, say they’re getting enough food, just not what they want, and the rest, almost 5 million, don’t have enough to eat at least some of the time.

no relief

Still, there’s no question the supplemental benefits helped a lot. But no longer.

There will probably be a second covid relief bill, but the two parties are far apart on details and the Republicans are divided among themselves. Dems are looking for a $4 trillion package; Republicans, a quarter that. The GOP is leaning towards another round of $1,200 checks, $200 in supplemental unemployment benefits and a cap at 70% of previous wages (something many states say would take them weeks to calculate), job retention tax credits, and liability shields to protect employers against suits from employees forced back to work. They’re also trying to slip the Pentagon almost $4 billion to replace money shifted from its normal budget to build Trump’s border wall. Trump himself wants almost $2 billion to fund a new FBI building on its current site, rather than one out in the suburbs as had previously planned. The reasons for Trump’s concerns, which he expressed right on taking office, are not fully clear, but may involve assuring that nothing could be built on the current site that would compete with his hotel down the block. The Dems want aid for busted state and local governments and school districts; Republicans don’t. The bickering is likely to drag well into August, which means lots of seriously broke people for weeks on end.

And why do the Republicans want to put a tight lid on unemployment benefits? Because, as Treasury Secretary Steve Mnuchin said, “We’re going to make sure that we don’t pay people more money to stay home than go to work.”

That attitude isn’t stopping Mnuchin for looking to forgive loans extended to businesses under the Paycheck Protection Program, or PPP. Businesses who took the loans were supposed to keep employees on payroll; if they did, the loans would be forgiven. It’s not clear how many did keep employees on the payroll, or how many gamed the system by laying off and then recalling workers before the deadline, but Mnuchin wants to forgive the loans without knowing auditing what happened.

That whole program was a disaster. Much of the money went to areas least affected by either the virus or unemployment. It was administered through banks rather than public authorities, and their decisions were often opaque, arbitrary, and slow. ProPublica reportedthat temp firms got PPP money to “retain” employees that they were renting out to their clients, meaning they got paid twice for the same work. The contrast with European job preservation schemes is striking. They paid employers promptly to keep workers on the job and they did. European unemployment rates have risen only slightly, and their economies look mostly to be recovering. Ours is a wreck.

The recovery in employment is also running out of steam. That same weekly Census Bureau survey reports a 5% decline in employment between mid-June and mid-July, almost 7 million people in numerical terms. As spending slips because the expanded unemployment benefits have expired, it’s hard to see how those employment numbers could do anything but decline further. Add to that the increasing covid toll in the South and West and we have a serious problem on our hands.

How long could this recession last? A long time, I’d say. Not only is a recovery dependent on getting the virus numbers seriously down, there’s a lot of damage to the real economy. As I said at the beginning, this is not merely not a conventional old textbook recession, a story of what the mainstream calls overheating followed by an imposed cooling followed by a normal recovery nor a financial crisis recession, where recovery is inhibited by a huge debt overhang. It’s one caused by immense damage to the real sector—supply chains broken, workers kept off the job by sickness and death (and the fear of sickness and death), firms bankrupted by months of closure who may never reopen and rehire. The Fed can pump money into the markets and the federal government can deficit spend on a previously unimaginable scale, but these problems will take time to heal.

And we haven’t really recovered from the 2008 crisis either. That led to serious long-term economic damage. Had the economy continued to grow in line with its 1970–2007 trend, GDP would be about 20% higher than it is now. GDP is a deeply flawed measure; it says little about distribution or quality of life, but it is what the capitalist system runs on. Listen to any pundit or propagandist, and growth is what the whole set-up is all about. And by this most conventional of measures, American capitalism is failing badly on its own terms.

With all this gloom, why has the stock market been doing so well? I see at least four reasons.

One, the financial markets’ reputation for rationality is thoroughly unearned. The markets are populated by traders with the emotional volatility of fourteen-year-old boys. (Actually, I have a fourteen-year-old son and he’s far more stable than a stock trader.)

Second, the markets have been convinced the virus is going to go away and everything will be better very soon. That bounceback was supposed to begin in the second half of the year; we’re a month into the second half of the year and it’s not here yet. (A major reason to worry: Trump economic advisor Larry Kudlow, who is almost always wrong about everything, says we’re going to see 20% GDP growth in the third and fourth quarters of this year. The US has never seen 20% growth over two quarters since the end of World War II; the closest we came was not quite 15% during the Korean War buildup of 1950. I’m tempted to put a negative sign in front of whatever Kudlow predicts.)

Third, the Federal Reserve has been pumping trillions into the markets for months; that’s potent fuel for a speculative fire.

And fourth, most of the market’s gains are concentrated in five big tech stocks, Facebook, Amazon, Apple, Microsoft, and Google. They’re up 35% since the beginning of 2020; the rest of the market, as measured by the S&P 500 index, is down 5%. (See graph below, lifted from that Financial Times article.) A 5% decline is not big, given the damage to the real economy, but it tells a much different story from the tech biggies.

Tech stox

WITBD?

So, to ask Lenin’s classic question, what is to be done? Most urgently, people need serious income support, at least $2,000 a month for at least six months. We need eviction and foreclosure moratoriums to prevent what looks like an inevitable wave of mass homelessness as people find it impossible to pay their rent and mortgages. State and local governments and school systems need big support; if they don’t get it there will be massive job and service cuts that will generate misery and deeper depression. Schools can’t reopen safely without a major infusion of resources.

Longer term never has the Green New Deal seemed so practical, Nancy Pelosi’s “green dream or whatever” to the contrary. It has everything we need: the massive public investment program to repair our rotting infrastructure, and the kinds of social spending we need to make the poor not poor and the working and middle classes comfortable and secure.

For decades, civilian public investment net of depreciation has hovered just above 0, meaning that we’re doing little better to replacing things as they decay. (See graph below.) This economic statistic can easily be confirmed just by walking around anywhere in the US outside our richest neighborhoods. We need massive investment in public infrastructure on the model of the New Deal, both to fight the slump and to make this country habitable for the bottom 80–90% of the population. That infrastructure investment must not simply be more of the same—not airports and highways but clean energy and high-speed rail. The investment program needs to be part of a conversion of an economy based on exploitation of workers and nature into something humane and sustainable. The New Deal also subsidized artists and writers, and the projects it created were often beautiful—not driven by the mean, philistine view of life that we usually associate with the public sector.

Net public investment 2020

As an example of the new kind of investment we need, we could put now-unemployed auto workers back to work building vehicles that don’t threaten life on earth. A model to think about was the (sadly unsuccessful) proposal to transform a plant in Ontario GM closed into something earth- and worker-friendly.

We also need to think about industries we don’t want to see recover. The airline industry is in dire shape. It’s also ecologically destructive and we need to imagine a world in which we all continue to fly much less. The cruise industry is filthy and wrecks the towns where those giant ships dock, and it should be euthanized. This would be a propitious time to nationalize the oil and gas sector, undertaken with the idea of putting them out of business. We must move as quickly as possible to stop the use of fossil fuels, and as long as these entities exist, the political and economic obstacles to that necessity are nearly impossible to overcome. Big Oil could be Because the price of oil has fallen so dramatically, the value of the major carbon producers has cratered. The five biggest US-based oil companies (Exxon Mobil, Chevron, ConocoPhillips, Phillips 66, and Valero) have a combined market capitalization of about $400 billion, which is equal to about an eighth of JPMorgan Chase’s total assets and less than 2% of GDP. Shareholders will whine, but as the financial world wakes up to the inevitability of carbon’s obsolescence, the value of their investments will tend towards 0 anyway. In all cases, workers should be protected, not displaced, but the underlying businesses should be wound down or severely shrunk.

The banking system is in decent shape now, surprisingly perhaps, but should the recession continue, as I think it will, this will change as more people and businesses find themselves unable to service their debts. Nationalize several of the largest banks—and unlike the nationalizations in Sweden in the 1990s and the UK a decade ago, they should not be undertaken with the idea of returning them to private ownership as quickly as possible, after the government eats the losses. They should be run on entirely different principles—something like a financial utility, that provides basic services like checking and savings accounts, but not incomprehensible financial products.

There’s no reason the nationalized banks couldn’t be run to finance the Green New Deal. Some of the GND will have to be financed with traditional tax- and bond-financed public spending, but there’s no reason these socialized banks couldn’t participate.

Along with the nationalized banks, we should create something on the model of the Reconstruction Finance Corporation, to finance the GND. It would be a publicly capitalized bank that would evaluate and fund projects like clean energy generation and new models of food production.

At the same time, we should severely rein in with an eye to abolishing, the shadow banking sector of private equity (PE) and hedge funds. PE has saddled companies with crippling levels of debt, which enrich their investors but put them at great risk of failure even in relatively good times. (A subset of PE, venture capital, can play a more constructive economic role, but it’s quite small: there was less than $10 billion in early-stage financing from the sector last year.) Hedge funds do little but destabilize markets and serve no useful purpose.

And never has the need for Medicare for All been so clear. And the reason for that isn’t only the need of freeing people from the anxiety of not being able to pay for essential care, but also because there is little in the way of planning for the distribution of health care resources beyond what The Market demands. A major part of the reason the US is so unprepared to handle the coronavirus crisis is that hospitals are built and outfitted according to where the money is, not where the needs are. Hospitals in both cities and rural areas are broke and closing in the middle of a health emergency. They need to be built where they can serve people who need them.

A lot of this may seem pie in the sky, but who ever thought there’d be a socialist caucus in the New York State legislature? The right still has political power but it’s widely discredited, and mainstream Democrats are out of ideas. We’re deep in a massive economic and social crisis and we’ve got the energy and ideas and they don’t. Now is not the time to be shy!

The Kid and the Modern American Growth Scam

Published by Anonymous (not verified) on Fri, 24/07/2020 - 6:00am in

By Mark Cramer

Modified from the original published in Welcome to Fakeville! (medium.com/@WTFakeville) on May 14, 2020.

Charlie Chaplin

The Tramp (Charlie Chaplin) and the Kid (Jackie Coogan) scheming ways to increase GDP growth. (Image: CC0 1.0, Credit: Charlie Chaplin)

In Charles Chaplin’s classic film, The Kid, the Kid runs around town throwing rocks into windows, setting the stage for his dad, the Tramp, to show up (by chance) with window-repair equipment. The family business is based on destruction.

Between the lines, this film introduces the God of the modern era: economic growth, or Gross Domestic Product. This God should be as terrifying as a sudden rock blasting through a living room window, but society is taught to love him. Our leaders can’t call this God “Gross,” so they give him an affectionate nickname: GDP.

Since the release of the Chaplin film in 1921, the Kid and the Tramp have found more artful ways to increase the Gross Domestic Product.

GDP Dreams: An Apple a Day, Coke from a Young Age, and Insulin for Those Who Can Pay

In Europe, prosecutors found that Apple’s Kid was breaking into iPhones. He was installing updates that deliberately slowed down phones, timing it to coincide with the release of a newer model. In 2018 in Italy, Apple and Samsung were fined for these break-ins. The amount of the fine was a slap on the wrist, as the CEOs apologized on behalf of their Kid, promising to stop him from committing further vandalism.

GDP is calculated by total expenditure. When you’re conned into buying a new phone, the scamster has effectively fed your lifeblood to the voracious God.

Sometimes the scamster is an entire industry. Coca-Cola executives specifically target children in their marketing. Despite the company’s promise to not promote Coke to children under the age of twelve, they use their Kid of TV, magazine, and radio advertisements—some of which feature real-life kids—to persuade children to love the sugary, caloric drink.

Kid drinking Coca Cola

“Open Happiness”? More like, open a can of worms—of GDP growth, that is. (Image: CC0 1.0, Credit: patblogger141526)

Then, the Tramp comes in. He sells insulin (also known as Coke’s spin-off product) to the diabetic Coke drinkers. The global insulin market went from $27 billion in 2015 to a projected $44 billion in 2021—a triumph for the Kid.

In the race to GDP superiority, our American leaders have allowed for insulin price gouging. The average insulin cost in the USA is seven times higher than the same product in Europe, so Team USA gets to brag about much higher GDP scores compared to the low “socialist” Euro scores. We’re number one!

GDP Muscle Men: The Military-Industrial Complex

A major chunk of GDP, the part that best feeds economic growth, is based on the ultimate break-it-and-remake-it business model. Consider the Military-Industrial Complex. Private weapons companies, hyper stimulated by government subsidies, are the biceps of GDP.

Since his debut in the Chaplin film, the Kid has moved on and up. At the behest of intelligence agencies, he travels to far-off lands, promotes conflicts, and thus provides a rationale for our military industry to use the bombs it has produced. It’s bad business to allow inventory to just sit around. These bombs must be used.

Throwing stones into windows was petty compared to dropping bombs on cities. The Kid has really matured. GDP skyrockets every time rockets take to the sky. GDP goes up in proportion to how many people are struck down. Republicans and most Dems agree: The Military-Industrial Complex needs our tax money.

GDP Fodder: America the Beautiful

We’ve only touched the surface of GDP growth. A lot is happening beneath that surface, like coal mining and drilling for fossil fuels. The expensive cleanup of the disastrous BP oil spill in the Gulf of Mexico was a great boon to GDP. The quicker we increase fossil-fuel GDP, the sooner we turn our spacious skies / our amber waves of grain / our purple mountain majesties / our fruited plains into the sizzling surface of Venus.

GDP is a nihilistic God. Economists on cable news and in the New York Times serve as his public priests and are well paid for their reverence.

GDP Role Models: The Mother Frackers

Most economists give lip service to “flaws” in GDP while it remains their go-to God. They will not admit that GDP consists of:

Billboard

“Apologies in advance for the delay to your journey home this evening,” a McDonald’s billboard reads. Another example of big business taking a page out of the Kid’s manipulative playbook. (Image: CC BY-SA 2.0, Credit: Albert Bridge)

landscape-scarring, big-box malls, and obscenely symbolic border walls,
junk-bond peddlers, junk-food dealers and faith-based healers,
pesticides, herbicides, fungicides, homicides, and hamburger hormones,
pay-day lenders and fender benders,
OPEC Superpacs, Big Mac heart attacks,
the for-profit jail and motherfracking shale

This is a voracious God. But he covers up his grimy lust with neon robes, flashing a few legitimate achievements in products, services, and culture, such as minor league baseball, Shakespeare in the Park, bowling alleys, bicycles, corner cafés, public education, and seven-grain bread. He giveth with one hand and taketh back with a huge shovel.

Economists are incapable of using more humane economic indexes that would expose their country’s faults. For in the end, GDP is a political choice. We must grow—infinitely it seems—even though the planet is finite.

GDP Palliatives: Countries Resisting GDP Determinism

One Buddhist nation, Bhutan, has thus far resisted the GDP God and adopted its own index: Gross National Happiness.

Another nation, Costa Rica, lives by the mantra, “GDP does not measure quality of life.” Notably Costa Rica has no standing army, while achieving a life expectancy of 80.1 compared to 78.9 in the USA.

Next year is the 100th anniversary of The Kid. Maybe by then most Americans will have finally figured out what the Kid’s been up to while they’ve been hard at work.

Mark Cramer is the author of Old Man on a Green Bike and Urban Everesting.

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Consumption in the time of a pandemic: tracking UK consumption in real time

Published by Anonymous (not verified) on Tue, 14/07/2020 - 6:00pm in

Sinem Hacioglu Hoke, Diego Kaenzig and Paolo Surico

The response to the Covid-19 pandemic has included closure of retail outlets and social distancing. How large was the resulting consumption fall in the UK? In a new paper, we try to answer this question using a transaction-level dataset of over 8 million individual transactions. This gives a near-real time read on consumer spending, without the publication lags associated with national accounts consumption data. We find that the bulk of the fall had occurred before legally mandated lockdown started. The largest declines occurred in retail, restaurants and transport, but spending on some items such as online shopping, alcohol and tobacco rose. There is substantial variation in change in consumption across age, income group, housing tenure and local authority.

From individuals to a real time consumption measure

Our starting point is individuals’ transactions. Especially in the times of crisis, spending data present a valuable way of taking a peek at how consumer behaviour changes. We contribute to a burgeoning literature exploiting transaction level data to analyse consumption changes during the pandemic as in Baker et al (2020) for the US, Carvalho et al (2020) for Spain and Andersen et al (2020) for Denmark.

We use an anonymized transaction level dataset provided by Money Dashboard (MDB), a free online personal financial management company operating in the UK. Their main product is an app that gives its users the flexibility to link multiple accounts (current, savings or credit card accounts) and provides them with a set of tools for categorizing and keeping track of their spending. We focus on the time period between 1 January to 26 April 2020. This provides us with over 34,000 users who have consistently used the app over this period and overall more than 8 million transactions. The MDB user base is skewed towards higher income and younger individuals so the sample may not be representative of the whole UK population. Also analyses based on other data sources on the real time effects of pandemic in the UK might lead to different results due to different data coverage.

MDB has developed algorithms to classify transactions into over 280 spending categories. The granularity of the data allows us to construct weekly expenditure measures not only for non-durables, durables and services but also for a number of more detailed categories such as retail, restaurant, travel and transportation.

Our benchmark total expenditure measure combines different spending categories but excludes recurring expenses such as bills, council tax and more importantly rents so in that respect is different than the National Accounts’ consumption measure. Given that bills and rental expenditures are likely to not adjust much in the short run, our measure likely produces a larger fall. The actual total spending measure is almost real time as it is available with a few days lag and is of paramount importance to track household demand in times of crisis.

Abrupt changes in consumption even before lockdown

The UK government announced the nation-wide lockdown on March 23, 2020 although there were softer measures in place starting from March 15. For example: restaurants and pubs were already asked but not required to close before the lockdown, the public was advised to avoid public transportation, embrace social distancing and work from home whenever they can. All these measures affected consumption ahead of the legally mandated lockdown measures. But the effect of the pandemic on different kinds of spending has differed.

We compute the average weekly expenditure, and then normalize this measure relative to the 2nd week of January. The top panel of Figure 1 shows the average total expenditure in 2020 (blue) compared to 2019 (red, in 2020 prices). The second week of March 2020 records a similar relative level of spending to 2019. But in the third week of March total expenditure declines sharply, with a fall of almost 30%. By the end of April the cumulative falls exceeds 40%. Similarly, measures of nondurable and services consumption record significant falls in the course of March 2020. Most of the decline in consumption, however, occurs starting from the second week of March, before the lockdown. So, the bulk of the fall in consumption comes before legally mandated lockdown measures, suggesting voluntary social distancing makes a bigger marginal contribution than lockdown.

Figure 1: Indices of weekly total, nondurable and services expenditures excluding recurring expenses, second week of January is set to 100

Big differences across expenditure types

Figure 2 takes a more detailed look at different expense types. This time we report actual pound spent per week for different spending categories. On the left panel, retail, restaurant and transportation expenses all decline significantly in March. Although the declines stabilize in April, the levels at which these expenses settle are 25% to 30% lower than 2019 levels. Interestingly, travel expenses dip towards the end of March but return to 2019 levels in April perhaps as individuals preserve the hope of ‘going back to normal’ towards the end of the year and start booking holidays.

Figure 2: Average weekly spending by different categories

On the right panel of Figure 2, unsurprisingly, there is a big spike in online shopping in the second half of March and grocery expenses in the second week of March. However, the initial rise in online shopping and groceries purchases have been reverted to levels close to 2019. We also document the increase in alcohol and tobacco consumption, and DYI/home spending. Although the latter is seasonal and also increases around the same time in 2019, there is a stark difference between 2019 and 2020 levels. Overall, the most affected categories seem to be nondurable and services consumptions, spending in restaurants, retail, and transportation.

Variation across local authorities

Finally, the pandemic did not have the same effect across all parts of the UK despite the nation-wide lockdown. Figure 3 shows a heatmap for the percentage decline in total expenditure from the last week of February to the last week of April 2020 across different parts in the UK darker (lighter) shades represent larger (smaller) declines whereas the light grey denotes areas with insufficient observations. The heat map reveals pervasive heterogeneity in the economic costs both across the country and within broader local authorities, ranging in between −16% to −33% in a few locations in the Midlands, Wales, Belfast and the Scottish Highlands, and −56% to −65% in a handful of areas across Greater London, Hampshire, Berkshire, Surrey and Aberdeenshire.

Figure 3: The decline in total expenditure in the UK

Inequality and heterogeneity

The pandemic has not affected consumption uniformly across the income distribution. While the whole nation experienced a dramatic decline in consumption, the changes in consumption are far from unified across individuals. To explore the inequality the pandemic has given rise to, first, we classify individuals in our dataset according to their income and consumption at each point in time. We have three groups: 90th percentile, 50th percentile (median) and 10th percentile. We also condition on individuals’ February 2020 income and calculate the heterogeneity in savings rates in a similar way. Then in Figure 4, we report these groups’ weekly consumption (top left panel), monthly income (top right panel) and saving rates (bottom panel) in 2020.

There are two important points emerging about inequality. First, all three groups exhibit declines in consumption and income (top panel) over the months of March and April 2020. The 90th and 50th percentiles (shown in green and blue) are not as affected as the individuals at the 10th percentile of the distribution (shown in orange) although the overall decline in spending and income is apparent. Second, the percentage fall in consumption and income is far more pronounced among households in the bottom percentiles shown in orange lines. While there is an uptick in the savings of the richer individuals, the decline in the savings of poor is quite stark. So, poorer individuals are getting more constrained, especially in April.

Figure 4: Log weekly consumption (left) and log monthly income (right) and saving rate (bottom)

In the same spirit, we can explore which individuals’ consumption has taken a big hit with respect to their housing tenure (if they are renters or mortgagors); age (young, middle aged or older); income (high, medium and low income). Figure 5 documents a few interesting findings. First, on the top panel, mortgagors appear to have a higher level of consumption than renters during normal times. But they are also the ones experiencing a relatively more pronounced decline in their consumption. Second, in the middle panel, middle-aged and older individuals sustain a higher level of spending than young individuals. For middle-aged and older individuals, however, the fall in consumption is starker in March 2020. Third, at the bottom panel, while low and middle-income individuals (below £50K) sustain almost half of the consumption of the wealthier individuals during normal times, the wealthy reduce their consumption more than others. In summary, mortgagors, middle-aged to older individuals and higher earners exhibit the largest spending drop in terms of pound value.

Figure 5: Heterogeneity of weekly total pound consumption by housing tenure, age and income

A novel machinery to track consumption in real-time in the UK

Even in tranquil times, it is difficult for economists to track what is happening to consumption. In crisis times, timely indicators of consumer spending can be extremely important to policymakers for understanding the fallout from crises. Our headline result is that consumption fell substantially before the onset of formal lockdown measures, suggesting that the effects of voluntary social distancing or advice can be significant. Looking beneath the aggregate- there are substantial differences across income, housing tenure, geography and income level.

Sinem Hacioglu Hoke works in the Bank’s Monetary and Financial Conditions Division, Diego Kaenzig is a PhD student at the London Business School and Paolo Surico is a Professor at the London Business School.

If you want to get in touch, please email us at bankunderground@bankofengland.co.uk or leave a comment below.

Comments will only appear once approved by a moderator, and are only published where a full name is supplied. Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England, or its policy committees.

Housing consumption and investment: evidence from the Help to Buy scheme

Published by Anonymous (not verified) on Wed, 20/05/2020 - 6:00pm in

Matteo Benetton, Philippe Bracke, João F Cocco and Nicola Garbarino

Academics have made the case for mortgage products with equity features, so that gains and losses due to fluctuations in house values are shared between the household and an outside investor. In theory, the equity component expands the set of affordable properties, without increasing household debt, and default risk. These products have not become mainstream, but in a recent paper, we study a large UK experiment with equity-based housing finance — the Help To Buy Equity Loan scheme. We find that equity loans are mainly used to overcome credit constraints, rather than to reduce investment risk. Unconstrained household prefer mortgage debt over equity loans, suggesting optimism about house price risk. Equity loans could still contribute to house price inflation: we don’t find evidence that houses purchased with equity loans are overpriced, but an assessment of the aggregate effects is beyond the scope of the paper.

The economic rationale for equity loans

Mortgage-financed house purchases create a levered position in real estate that amplifies the effects of house price fluctuations on the household’s net worth (Campbell and Cocco (2003)). These risks are correlated across households and have aggregate consequences, as evident during the Great Recession. Under traditional mortgages, households bear almost all house price risk, and the only risk-sharing mechanism is defaulting. Academics, most notably Shiller (1994), have proposed alternative financing structures that make the payoffs to investors who provide financing contingent on future house values. As house price risk is shared between households and investors, both the amount of vanilla debt and default probabilities are reduced.

The Help-To-Buy Equity Loan scheme

In spite of their large potential benefits, these hybrid products, with debt and equity features, have not become mainstream. An important exception is the recent Help-to-Buy Equity Loan (EL) scheme introduced by the UK government in April 2013. The EL scheme provides capital of up to 20% (40% in London since February 2016) of the property purchase price in exchange for the same share of its future value. The scheme is limited to new properties with a value below £600,000. To qualify, households have to provide a 5% down payment, and there are no restrictions in terms of age, income or wealth (but EL cannot be used to purchase a second home). As the name indicates, the scheme was motivated by affordability, rather than risk-sharing, considerations. From the scheme’s inception until end of June 2018, the total value of the equity provided by the UK government was £9.9 billion for the acquisition of properties with a total value of £46.5 billion.

In this paper we study the reasons behind the large demand for ELs. Homebuyers can use ELs as an alternative to traditional mortgage financing, in order to reduce their leverage and exposure to house price shocks (the risk-sharing motivation studied by academics). But ELs can also be used in addition to a traditional mortgage, in order to overcome credit constraints and purchase more expensive properties (the affordability issues that motivated the launch of the scheme).

The role of credit constraints

To understand the role of credit constraints, we study the distribution of origination loan-to-value (LTV) and loan-to-income (LTI) ratios for eligible property transactions between 2013 and 2017. Lenders use LTV and LTI ratios to determine the maximum loan amount and as cut-off criteria above which they reject mortgage applications, but the EL is not included in their calculations. We show that an overwhelming proportion of borrowers would not have, without the EL or a larger down payment, been able to borrow the mortgage amount needed to purchase their property. As a benchmark, in Panel A of Figure 1 we plot the distribution for borrowers who were eligible for the EL scheme (ie bought a new property under £600,000 after 2013) but chose not to use it. Very few mortgages have LTV above 90% and none has LTV above 95%. Very few mortgages are above the 4.5 LTI cut-off. In Panel B we report the distributions for EL borrowers, and, in addition to LTV and LTI ratios calculated using the mortgage debt, we plot cumulative LTV (CLTV) and LTI (CLTI). The majority of EL borrowers take out a mortgage with 75% LTV, which allows them to purchase the property with the maximum equity loan (20%) and the minimum down payment (5%). The corresponding CLTV is 95%. Compared to non-EL borrowers, the LTI distribution of EL borrowers is shifted to the right and bunched towards the 4.5 LTI threshold. The corresponding CLTI distribution shows that many EL borrowers are over the 4.5 limit.

Figure 1: Loan-to-value and loan-to-income distributions (new properties with value below £600,000, April 2013-March 2017)

EL borrowers also take mortgages with longer maturities, which relaxes payment-to-income constraints. They are significantly younger, much more likely to be first-time buyers, and they use a significantly lower down payment than those who buy properties just above the threshold.

The London experiment

To provide causal evidence on how borrowers react to the availability of equity financing, we exploit a change that took place in February 2016, when the maximum EL contribution for the acquisition of properties in London increased from 20% to 40% of their price. We use a difference-in-difference methodology to show that a large number of individuals took advantage of the increased scheme contribution to buy more expensive properties, instead of reducing their mortgage debt and house price risk exposure. The properties are more expensive because they are better quality (eg more square meters) rather than overpriced — the results are very similar when we into account local house price inflation. This is again evidence of the role that credit constraints have in the scheme take-up.

House price expectations

In spite of its success, a large number of homebuyers who could have taken advantage of the EL scheme and of the government subsidy that it involves, have not done so. Why not? Homebuyers who have not used the EL scheme could have bought the same house using the EL and a 20% lower LTV mortgage. Their mortgage payments would have been lower due to both the lower mortgage amount and the fact that a mortgage with a 20% lower LTV has a lower interest rate. For borrowers with an original mortgage LTV over 85% the reduction in monthly (median) mortgage payments would have been substantial: from £823 in the base case to £528.

On the other hand homebuyers would have had to give 20% of the future value of the house to the government at EL termination. We calculate the minimum (break-even) rate of expected house price appreciation that a risk neutral individual, or one that ignores house price risk, requires to be better off without the EL. Our calculations show that for individuals who did not make use of the scheme and took a mortgage with an LTV greater than 85%, the average break-even rate of annual house price appreciation is as high as 7.7%. The choices not to use EL can therefore be rationalized by a high expected rate of house price appreciation. (We assume that house buyers are risk-neutral, but risk-averse individuals should require an even higher return on their investment). Alternatively, one may interpret the high implied house price expectations as a proxy for informational or cognitive frictions that affect households’ awareness and evaluation of the scheme.

Conclusions

We provide evidence that the main driver of the large demand for ELs in the UK comes from a desire to overcome credit constraints, and increase housing consumption. Our data cover a period of fast house price appreciation (which is when affordability problems become more acute) and households may behave differently when prices decline. Any macroeconomic benefits from these products will also depend on their effect on house prices, the risk for investors, and the risks faced by suppliers of equity loans — all issues that are outside the scope of this paper.

Matteo Benetton works at the Haas School of Business, University of California, Berkeley, Philippe Bracke works at the Financial Conduct Authority, João F Cocco works at the London Business School and Nicola Garbarino works in the Bank’s Prudential Policy Directorate.

If you want to get in touch, please email us at bankunderground@bankofengland.co.uk or leave a comment below.

Comments will only appear once approved by a moderator, and are only published where a full name is supplied. Bank Underground is a blog for Bank of England staff to share views that challenge – or support – prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England, or its policy committees.

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