Home > Regular Features > Sandpit

Sandpit

March 12th, 2016

A new sandpit for long side discussions, idees fixes and so on. Discussions about climate policy and related issues can be posted here, along with the usual things.

Categories: Regular Features Tags:
  1. David
    March 12th, 2016 at 23:15 | #1

    Can anyone explain how the limit of 2 degree temperature increase was derived. Ordinarily an economic evaluation would determine that temperature can increase until MC of reduced CO2 = MB of reduced temperature. But it seems like the 2 (or 1.5) degree degree limit is not derived through economic tools.

  2. March 13th, 2016 at 07:29 | #2

    Well David, it was like when the doctor told my Uncle he had to stop smoking or he would be dead in 20 years, so my Uncle resolved to quit smoking in 19 years time. He willfully ignored the downside risks because he didn’t want to make the effort to change.

  3. March 13th, 2016 at 07:52 | #3

    @David
    its in the IPCC reports David. There are representative pathways that estimate how much warming we can expect for certain rates of emissions. 1.5 – 2C is like best case – lowest rate we can hope to achieve.

    The pathways are of course based on climate science predictions. The best case scenario (how much we can slow the rate of emissions, how fast we can achieve zero net emissions and how much we can take CO2 out of the atmosphere) is I guess based on economic tools as well as climate science, I don’t really know, but given that we are over 1C already it is also a bit of a common sense or realpolitik argument I guess.

  4. Ivor
    March 13th, 2016 at 08:59 | #4

    @David

    Economic theories such as marginal costs = marginal benefits do not work where the conditions of a competitive, free entry/exit, homogeneous product, market do not apply.

    Capitalists with various degrees of monopolisation, and control of State apparatus, are able to exploit fossil fuels which maximises private benefits (to their owners) while damaging the rest of the public.

    The utilisation of fossil fuel is facilitated by political economy not the economics you have cited.

    AFAIK the 2 degrees is a red herring and has no real basis. The real need is to level off the Keeling curve, and this is well stated by Ralph Keeling (son of Charles Keeling) here:

    Keeling

    You can skip to around 40 minutes in the video.

    He demonstrates that to level off Keeling Curve we must reduce by 57% globally.

    The message from the Paris failure is that this task – reducing by 57% = will not even start until well after 2020. So it really is all over.

  5. Ikonoclast
    March 13th, 2016 at 09:20 | #5

    Ronald Brak’s short answer is a pretty good summary. Since I am neither as witty nor as succinct, I offer the following.

    “The Economist” online in its “The Economist Explains” series writes;

    “The two-degree maximum appeared initially in papers written by the Yale economist William Nordhaus in the mid-1970s. As “a first approximation” he suggested the world should not warm more than it had in the past 100,000 years or so—the period for which ice-core data were available. Given how little was known about the costs and damages of global warming at that time, Dr Nordhaus admitted that the estimate was “deeply unsatisfactory”. Nevertheless, European scientists discussed the two-degree limit during the next decade or so; in 1990 the Swedish Environment Institute produced a report that argued that, on the basis of “the vulnerability of ecosystems to historical temperature changes,” warming above just 1°C was not advisable. The authors knew it was too late to keep within this level, and so suggested 2°C instead. From thence the maximum was adopted by the European Union’s Council of Ministers in 1996; the G8 picked it up in 2009. During the chaos of the UNFCCC talks in Copenhagen that year, the two-degree limit emerged in glory, forming part of the deal made there between the world’s biggest polluters. In 2010 it was enshrined within UN policy.”

    The short answer is that it is a somewhat arbitrary limit to hopefully limit climate change damage; a limit which still appeared realistic when mooted and adopted.

    The slightly longer, group psychology and political economy, answer is that it is the kind of goal people pick when they want to fool themselves and each other. People don’t really want to face up to either the fear of a realistic assessment nor the pain, effort and sacrifice of making the real changes necessary to deal with climate change. Psychologically, people prefer to live in denial and pretend its not happening.

    In terms of politics and economics, we have a short to mid term focus (which actually mimics our social psychology of short to mid term focus). This tends to happen with semi-automatic or semi self-guiding systems like our mixed economy capitalism.

    Our political-economic system (mixed economy capitalism) in any case is not geared to making long term assessments and decisions nor is it geared to costing negative externalities. The two degree “limit” was an attempt to deal with these problems. When one examines it, all our attempts to deal with climate change to date have been cop-outs; the have simply kicked the can down the road. They involve a great “song-and-dance” pretence that we are doing something while in reality we do nothing of practical, effective significance. This has been the story to date.

    Along with these problems, we have developed an ideology that economics (economic “experts” and their determinations and policies) should lead our society. This position is misleading and dangerous as the Canadian philosopher John Ralston Saul has pointed out. We should in fact employ full citizen democracy, moral philosophy (humanist and religious) and scientific assessments to direct our society. Economics should then be about a fourth order concern.

    Our society suffers from “Economism”; from having made economics its guiding ideology and even its pseudo-religion. “Economism is reduction of all social facts to economic dimensions. The term is often used to criticize economics as an ideology, in which supply and demand are the only important factors in decisions, and outstrip or permit ignoring all other factors.” – Wikipedia.

  6. March 13th, 2016 at 09:27 | #6

    David, a slightly more technical answer that doesn’t involve my Uncle is that atmospheric CO2 concentrations can reach a peak of 475 ppm while still potentially avoiding 2 degrees of warming. This means governments don’t nearly have to make nearly as much effort to limit emissions as they would if the much safer and more sensible limit of 1.5 degrees of warming was chosen instead. It is the result of politics and not the recommendations of climatologists or economists.

  7. Garry Claridge
    March 13th, 2016 at 09:42 | #7

    Automated Payment Transaction Tax. A discussion group, in which I am engaged, is weighing-up the potential for a policy promoting a micro Automated Transaction Tax (primarily a Financial Transaction Tax) as the sole tax for Australia.

    Has anybody done any modelling work in this area? Or, any thoughts and opinions?

    Thank you.

    Garry

  8. Ivor
    March 13th, 2016 at 14:52 | #8

    If you don’t give workers wages equal to the value of their production, they then need to use credit to purchase a reasonable share of good and services.

    Then this happens: DEBT

  9. Tom Davies
    March 13th, 2016 at 17:46 | #9

    @Garry Claridge You could try googling ‘easytax’ — there may have been some analysis done of that when it was a thing…

  10. David
    March 14th, 2016 at 13:25 | #10

    Thank you everyone. Some interesting thoughts to digest.

    David

  11. chrisl
    March 14th, 2016 at 16:54 | #11

    David: You have asked one of the questions of the ages , Just like “Who made God?” It can’t be derived, it can’t be proven but there it is. A tenet.

  12. Ikonoclast
    March 14th, 2016 at 19:38 | #12

    @Ronald Brak

    “atmospheric CO2 concentrations can reach a peak of 475 ppm while still potentially avoiding 2 degrees of warming.”

    That’s a dicey proposition. It might be right but I feel the chances are low (significantly less than 50%) that it is right. There is considerable concern now that even the current level (400 ppm?) might be triggering tundra, Arctic and seabed methane releases which will magnify and accelerate warming. If 450 ppm, for example, triggers runaway a greenhouse effect then it doesn’t matter if we hit 450 ppm or anything above it from our forcing. The climate system will run away anyway. The climate system could “runaway a good distance” and then self-limit and recover. But “runaway” will destroy civilization and probably send us extinct. The recovery will be of the order of millions of years; way too slow save homo sapiens.

  13. Ikonoclast
    March 14th, 2016 at 21:58 | #13

    Pasted over from another thread. This needed to be sandpitted.

    Ronald Brak’s insistence of super simple definitions for “capitalism” is a trap in many ways (intentional or not) and I fell into it. David Harvey’s marvelous short paragraph “definition” or explanation of capitalism given below illustrates well why my over-simplistic definition of capitalism falls well short of the mark.

    “Capital, Marx insists, is a process of circulation and not a thing. It is fundamentally about putting money into circulation to make more money. There are various ways to do this. Financiers lend money in return for interest, merchants buy cheap in order to sell dear and rentiers buy up land, resources, patents, and the like, which they release to others in return for rent. Even the capitalist state can invest in infrastructures in search of an improved tax base that yields greater revenues. But the primary form of capital circulation in Marx’s view was that of production capital. This capital begins with money which is used to buy labor power and means of production which are then brought together in a labor process, under a given technological and organizational form, that results in a new commodity to be sold on the market for the initial money plus a profit.” – David Harvey.

    In many ways, the above is an excellent and elegant short description of capitalism or at least of industrial capitalism. I am tempted at this moment to think it is the best short description I have found. It contains the seeds of understanding that capitalism is a process and an evolving process; that industrial capitalism could morph into something else like financial capitalism, information capitalism, prosumer capitalism or even prosumer socialism etc. etc. The first thing you need to understand if you are trying to understand capitalism is that you are trying to understand a system as it evolves before your eyes. There is no fixed target, definition or diagram which is going to be easily and simply understood.

  14. March 14th, 2016 at 22:23 | #14

    Ikonoclast, the likelihood of avoiding two degrees of warming after CO2 peaks at 475 ppm depends on climate sensitivity and how rapidly CO2 emissions are cut after the concentration peaks. In the past using the middle of the road estimate of climate sensitivity and emission reduction the chance of staying under 2 degrees of warming was pegged at 75%. What the chance would be now that estimates of climate sensitivity have been refined further, I don’t know. But the fact that last year temperatures rose to above freezing on the 30th of December at the north pole in the middle of winter after 72 days of continuous night is not a good sign.

  15. Ikonoclast
    March 15th, 2016 at 07:07 | #15

    @Ronald Brak

    I give credence to those climate scientists and commentators who have been saying IPCC estimates are too conservative.

    Climate Science Predictions Prove Too Conservative – Scientific American, 2012.

    “Across two decades and thousands of pages of reports, the world’s most authoritative voice on climate science has consistently understated the rate and intensity of climate change and the danger those impacts represent, say a growing number of studies on the topic.”

    “A comparison of past IPCC predictions against 22 years of weather data and the latest climate science find that the IPCC has consistently underplayed the intensity of global warming in each of its four major reports released since 1990.”

    And from another Scientific American article in 2012, How the IPCC Underestimated Climate Change:

    “IPCC emission scenarios seriously underestimated global CO2 emission rates, which means temperature rates were underestimated too. And it could get worse: IPCC projections haven’t included likely feedbacks such as large-scale melting of Arctic permafrost and subsequent release of large quantities of CO2 and methane, a greenhouse gas 20 times more potent, albeit shorter lived, in the atmosphere than carbon dioxide.”

    “Projection (2012): The IPCC has always confidently projected that the Arctic ice sheet was safe at least until 2050 or well beyond 2100.

    Reality: Summer ice is thinning faster than every climate projection, and today scientists predict an ice-free Arctic in years, not decades. Last summer, Arctic sea ice extent plummeted to 1.32 million square miles, the lowest level ever recorded – 50 percent below the long-term 1979 to 2000 average.

    Why the miss? For scientists, it is increasingly clear that the models are under-predicting the rate of sea ice retreat because they are missing key real-world interactions.”

  16. Ivor
    March 15th, 2016 at 07:59 | #16

    Why the miss? For scientists, it is increasingly clear that the models are under-predicting the rate of sea ice retreat because they are missing key real-world interactions.”

    Almost as bad as economists?

  17. Ikonoclast
    March 15th, 2016 at 08:24 | #17

    This is a brilliant article by David Harvey. It is well worth a read and it explains capitalism and the GFC very well. A key concept is that capitalism continually functions to move its crises around. My own opinion is that this could explain the supple interim power of capitalism but also its ultimate limitations. The article also bears on climate change as it explains why capitalism is committed to endless growth. The discussion is subtle where it deals with natural limits and the ability of capitalism to transcend them repeatedly but not necessarily indefinitely.

    http://davidharvey.org/2010/08/the-enigma-of-capital-and-the-crisis-this-time/

  18. Ernestine Gross
    March 15th, 2016 at 09:44 | #18

    Debt and financial crises. Debt and asset price inflation. Debt and boom and bust. Debt and wealth redistribution.

    Today I found data without much effort in support of my long held argument that there was a lot of ‘foam’ (debt) driving the spectacular share market boom prior to the GFC. Here it is the relevant data, an excerpt from the referenced smh article:

    “Total margin loan balances according to the RBA’s latest figures were $12.3 billion for the September quarter of 2015 compared with $11.9 billion a year earlier and $12.7 billion in the September quarter of 2012.

    Contrast that to the heady days of December 2007 when the sharemarket was at its peak and margin loans totalled $41.6 billion.”

    Read more: http://www.smh.com.au/business/markets/gen-ys-executives-seek-upside-in-margin-loans-20160207-gmo49j.html#ixzz42vInBbxz
    Follow us: @smh on Twitter | sydneymorningherald on Facebook

    One of the implications of debt driven booms and busts in financial securities markets for wealth distribution concerns superannuation.

    For several years workers, via compulsory superannuation contributions, bought debt inflated equity (shares) indirectly via superannuation corporations. The time span is approximately 2002 to 2007. The purchases were financed from wages (employees as well as owner operator entrprises). There is a implied wealth transfer, from productive work to speculative activity.

  19. Troy Prideaux
    March 15th, 2016 at 09:56 | #19

    Ernestine Gross :
    For several years workers, via compulsory superannuation contributions, bought debt inflated equity (shares) indirectly via superannuation corporations. The time span is approximately 2002 to 2007. The purchases were financed from wages (employees as well as owner operator entrprises). There is a implied wealth transfer, from productive work to speculative activity.

    So… when the bubble burst, many speculators pulled their money (profits primarily) built on speculation 1st leaving super funds with a significant loss? Thereby completing a rather rapid and significant transfer to some clever bankers?

  20. Ikonoclast
    March 15th, 2016 at 10:24 | #20

    @Ernestine Gross

    I assume that the implications of this are that asset bubbles might still have a long way to fall. Asset bubbles are not being as heavily inflated now but they were heavily inflated in the relatively recent past. Following on from this, recent retirees with (compulsorily) market-linked super probably face big downside risks. This suggests to me that such persons should pay off all debt with their super immediately and possibly even deplete the remainder relatively fast. Why wait for it to collapse in value? The difference in depletion time might not be that great. But each person must make their own assessments and decisions of course. I am not a financial adviser of any kind.

    If the world economy stagnates long-term, which it now appears very likely to do, in my untutored opinion, then paper claims on future wealth (like super funds) may will find not much real wealth creation eventuates. The three reasons I predict long term stagnation are;

    (1) Limits to growth (resource limits and waste absorption limits) will have real negative impacts. Some limits can be resolved by substitution but not all. Climate change, sea-level rise and ecosystem disruption are special and powerful cases of environmental limits. These will do enormous human and economic damage over the rest of this century and beyond, IMO.

    (2) Developed countries face secular stagnation in any case. The long run record shows a declining trend in economic growth in developed nations since the 1960s. There are demographic and other reasons for this secular stagnation.

    (3) Capitalism, especially under neoliberalism and corporatism, which are still strengthening their grip over the global economy, cannot resolve its own contradictions and now favours contractionary policies like austerity. As real production contracts in many regions, asset bubbles are still inflated, albeit at lower rates, by the financial system. The gap between market values and fundamental values and realities gets wider and wider. Only a market collapse can resolve the gap.

  21. BilB
    March 15th, 2016 at 11:05 | #21

    The Harvey piece is a very good read, Ikonoclast.

    I haven’t read it all yet but I like his conclusion approach. He identifies the real problem as…. ““Freedom” then becomes just another word to justify repression”…… and goes on to show that Marx’s thinking covered seven “moments” (I’ll call them vectors) that contribute to capitalism’s dominance, and all must be addressed consecutively in order to manage the excesses of capitalism and bring about change. An island of rationality in a sea of confusion.

  22. March 15th, 2016 at 12:05 | #22

    Ikonoclast, if you can’t give a definition for the word capitalist, then please stop using the term as it is useless and no longer functions as a word. Instead, please use terms that specifically describe the situation you are discussing. If you think about it, you will see that if you don’t do this and instead use the letter arrangement “capitalism” it will not be possible for myself or others to understand what you are saying without stopping to ask you just what you choose it to mean – neither more nor less, in each particular instance you employ it. And that would be, and is, tedious.

  23. Ernestine Gross
    March 15th, 2016 at 12:46 | #23

    @Troy Prideaux

    First, an apology. As on other occasions, I see my spelling errors (enterprise in this instance) immediately on other people’s posts!

    Well, who exactly gained is more difficult to determine than who lost regarding compulsory superannuation contributions. Using the share market indices in Australia as an indicator veriable, the indices have not ‘recovered’ to their 6000 plus level from 2007-08. They have moved around 5000 for a long time – about 2 years. Price indices ignore dividens. True. But dividends were paid prior to the bust, too. I conclude a non-trivial amount of compulsory superannuation contributions paid by workers during the said years is wealth lost by the contributors. This is wealth not available to first home buyers, etc. This is the relatively easy bit.

    Who gained? Not necessarily all speculators but not necessarily none. Yes, banks are the prime suspects. Lending institutions in Australia (eg CBA) pushed leveraged investments in financual securities very heavily then. Banks make money on lending. I don’t know how many margin calls and their values were not met. I do know that a lot of this type of lending was secured by mortages of real estate. Enforcing contracts is costly. (Finding out by studying the sequence of bank and other lenders’ Profit and Loss and Banlance Sheet reports is costly too, too costly for me.) My working hypothesis is the lending sector was a net beneficiary. More precisely, the various high level managers, traders, advisers, and their bonuses.

    All prices are related – the one generally applicable insight from general equilibrium theory. Note, the share market crash of 2007-08 (there was a cat bounce in Australia) was followed by a real estate boom in the major cities (several small cat bounces since then), subsidised by tax payers’ money (negative gearing, capital gains tax concessions). My working hypothesis is that there was a shift from leveraged investments in financial securities into leveraged investment into real estate. By shift I mean a significant portfolio adjustment.

    As hc mentioned on another thread, some phenomena is difficult to detect by econometric means. I believe the workings of ‘high finance’ is one such phenomena. One kind of needs to keep the nose on the ground while recording, roughly, many time series on a mental map to make any sense of what is going on.

  24. Ernestine Gross
    March 15th, 2016 at 12:47 | #24

    @Ronald Brak

    I second your request for Ikonoclast regarding ‘capitalism’ and ‘capitalist’. Ikon’s post are often insightful and well written, except for his insistance of using the said so far empty terms.

  25. Ernestine Gross
    March 15th, 2016 at 13:17 | #25

    @Ernestine Gross
    Corrections:
    #2, line 3: replace “as an indicator veriable” with “a indicator variables”

    #2. I should have been a bit more careful regarding the description of the loss borne by superannuation contributors. Let {P[t]/ leverage} denote the vector of share prices at date t, t = 1 to n (ie the period of the boom), given margin lending (leverage) and let {p[t]} be the corresponding time series of vectors of share prices, assuming no ‘margin lending’, then the loss at each date t is q[t](P[t]/leverage) minus q[t](p[t]) for all t = 1, …, n, where q is the portfolio weight, a vector, not necessarily constant over time. This definition ignores compound interest foregone during the period.

  26. tony lynch
    March 15th, 2016 at 13:57 | #26

    @Ronald Brak

    ikonoclast did give a definition – a complex definition, but not impenetrable or unclear. Are you OK?

  27. BilB
    March 15th, 2016 at 15:06 | #27

    Continuing on with the Submarine video series here is an offering from Boeing

    https://youtu.be/L9vPxC-qucw

    Surely we can some of these “on the side”. Would have been pretty handy to have looking for lost aircraft.

  28. March 15th, 2016 at 16:16 | #28

    Tony Lynch, Ikonoclast wrote, “The first thing you need to understand if you are trying to understand capitalism is that you are trying to understand a system as it evolves before your eyes. There is no fixed target, definition or diagram which is going to be easily and simply understood.”

    If there is no definition of capitalism that can easily and simply be understood, and what the term does describe is constantly changing, then using the term capitalism is pointless. If Ikonoclast wants people to understand him, he clearly needs to stop using it.

  29. Ivor
    March 15th, 2016 at 16:45 | #29

    @Ronald Brak

    Actually the definition provided is quite clear and can be easily and simply misunderstood by those with an honest effort.

    @Ernestine Gross

    Since when was a dichotomy between those who own the means of production and those who do not been empty?

    Since when was the dichotomy between the flow of funds into personal incomes and flow of funds into capital accumulation, empty?

  30. Ernestine Gross
    March 15th, 2016 at 19:11 | #30

    @Ivor

    What do you mean by ‘means of production’? What do you mean by flow of funds? And, under which conditions is the flow of funds into personal income different from the flow of funds into capital accumulation?

    For your information, I am not a scholar in Karl Marx’s writings, but I am not totally ignorant about economic history and the history of ‘economic thought’ either.

    The structure of economic relations (institutional arrangements, laws and regulations) prevailing in Europe in the 18th and 19th century are not identical with those we have experienced during our lifetime, including changes during this time. Hence, terminology, like ‘means of production’ had a reasonably clear meaning in the historical context in which Karl Marx wrote. At that time, there were no superannuation funds or small private savings which could be invested by the majority of the population in financial securities representing ownership of enterprises which, in some sense are ‘means of production’. The distinction between physical capital and financial capital was perhaps not as clear as now, and so on. The ‘international monetary system’ was totally different, etc, etc.

    I found Ferdinand Braudel’s book, The Wheels of Commerce, Civilisation & Capitalism 15th-18th Century, quite useful to get a little insight into the structure of economic systems, centred in Europe but affecting other parts of the ‘global economy’, during that period.

    Enough said regarding the emptiness of the words ‘capitalism’ and ‘capitalist’ in contemporary society.

  31. Ivor
    March 15th, 2016 at 20:24 | #31

    @Ernestine Gross

    I am flummoxed by someone trying to impute uncertainty into means of production. All economic life is production and surely this is well enough known for people to talk about GDP, productivity and output etc.

    As such things don’t fall out of the sky, they must be produced by some means.

    So what is the problem with describing “means of production”. What production has no means???

    Everyone should know that any monetary economy always has a flow of funds if commodities change hands. Flow of funds may confuse people embedded in barter economies – but it must be reasonaly clear even in economies operating with cowrie shells.

    Under capitalism, because of capitalism, the flow of funds into personal incomes is fashioned as waged-labour, and is less than the value produced by labour. The flow of funds into capital accumulation is greater than the value produced by capital and the final proof of this was produced by Picketty who noted that r (the rate of capital returns) > rate of growth.

    This does not apply to wages. The rate of wage increase rate of growth.

    Capital income accumulates – wage income exhausts.

    Economic inequality, economic injustice, and economic catastrophe are therefore inevitable.

    The existence of superannuation makes no difference whatsoever. Superannuation is only an amount of pooled capital seeking maximum returns. It pays part of its proceeds to individuals just as shares investors also receive part of the proceeds of the capital they have pooled.

    Pooled capital existed in the nineteenth century and the contradictions inherent in pooled capital are identical to the contradictions inherent in private capital.

    The economic relations, within which the contradictions of capitalism arise namely, wage-labour and the production of commodities, are exactly the same today as in the nineteenth century.

    There were also your so-called “small private savings which could be invested by the majority of the population in financial securities representing ownership of enterprises” – shares, bonds, debentures, loans and etc. In fact Karl Marx himself invested in shares.

    The distinction between physical capital and financial capital was just as clear then as now. The only relevant difference is that there was more specie currency and less paper. But the rationale for all transactions was the same.

    But capitalist economies had to desert any specie basis due to the very “empty” nature of “empty” capitalism.

  32. Ivor
    March 15th, 2016 at 20:28 | #32

    This blog does not accept the not-equals text symbolisation.
    Consequently the sentance above

    The rate of wage increase rate of growth.

    Should be:

    “The rate of wage increase is not greater than the rate of growth.”

  33. Ikonoclast
    March 15th, 2016 at 20:52 | #33

    @Ronald Brak

    I might keep using the word. You don’t have to read my posts.

  34. Ikonoclast
    March 15th, 2016 at 21:21 | #34

    Just thought people might want to be aware of this.

    “Look out: Microsoft shifts Windows 10 to ‘Recommended’ update, automatic download”

    http://www.extremetech.com/computing/222326-look-out-microsoft-shifts-windows-10-to-recommended-update-automatic-download

    Microsoft has check box options which are perhaps designed to mislead you or channel you into accepting the update against your wishes. Be careful if you do not want the update. Look at changing your update settings if you think you want to avoid an automatic download of Windows 10. Opinions and reports vary as to whether some existing installed software will work as well or not on Windows 10.

  35. Ikonoclast
  36. Tim Macknay
    March 15th, 2016 at 22:01 | #36

    @Ivor

    Actually the definition provided is quite clear and can be easily and simply misunderstood by those with an honest effort

    LoL.

  37. Ikonoclast
    March 16th, 2016 at 08:10 | #37

    These claims that “There is no such thing as capitalism,” remind me of Maggie Thatcher’s declaration, “There is no such thing as society.”

  38. Tim Macknay
    March 16th, 2016 at 10:49 | #38

    @Ikonoclast
    Who is claiming that? No-one on this thread, as far as I can tell.

  39. Ikonoclast
    March 16th, 2016 at 11:12 | #39

    I am puzzled why some people wish to deny that our economy has a certain organising principle which might be characterised by the term “capitalism”. It is possible, indeed it is largely unavoidable, that a very complex system, like a society, will have many complementary and competing organising principles. Some will be minor organising principles. Other principles in societies will be organising principles of middling importance and some will be organising principles of great importance. It might even be possible to identify what can be regarded as the major or even dominant organising principle across an economy or a society as a whole.

    It is clear, even from the scholarship of orthodox economics, that there is something identified as existent which is called “capital”. From this it follows that if the operations of capital are seen or interpreted as playing a dominant role in the organisation of the economy then the system can be termed one of “capitalism”. If the operations of capital are seen or interpreted as playing a dominant role in the organisation of only a significant part of the economy and not the whole then the system can be termed a mixed economy, or mixed society, with “capitalism” or “free enterprise” as an important element.

    Declaring “capitalism” an un-word or a non-concept is not a valid procedure of argumentation. Capital exists (as money capital and asset capital) and in its various forms and processes, and through its various agents, it plays an undeniably important organising role in our economy and society. It follows from this that the postulate, that the operations of capital are central to an understanding our economy, is valid as a postulate though clearly not proven as a postulate merely by its assertion . It follows from this that “capitalism” is a concept with content.

    It is valid to assert, as postulates, that “ours is a capitalist society” or “ours is not a capitalist society”. It is not valid to assert “capitalism is a concept with no content”. Thomas Piketty (self-declared as NOT a Marxist) uses the word “capital” many times in his magnum opus. The title is “Capital in the 21st Century. He clearly thinks capital and its operations are centrally important to our economic system. He demonstrates the key ways in which the operations of capital, under the laws and institutions of our society, and in the hands of agents with control over capital, demonstrate profound systemic (system-determining) behavior in our economy and society.

    If we had a neighborhood, where the operations of gangsters appeared to be having a profound and pervasive effect on most citizens, we would certainly understand what was meant if someone referred to the neighborhood as being controlled by “gangsterism”. We might openly agree or disagree with the explicit assertion depending on our own perceptions, fears and allegiances. (That final point about allegiances is important. Allegiances determine beliefs or at least expressions of beliefs.) If a person asserts a system is one of capitalism he or she is asserting that the operations of capital, and capitalists as agents wielding capital, have profound and pervasive effects on most citizens. The effects might be beneficial, harmful or mixed in outcomes. And whether or not we agreed with the assertion, we would know, if we were educated even a little in economics or political economy, what the assertion meant. We would know what its concept content was. For educated people to contend otherwise, when there are many extant texts and works explaining the concept content of the term of “capitalism”, including at least implicitly even Piketty’s recent work, is, as I say, a puzzle to me.

    Assertions that “capitalism” is a non-concept and we ought not or should not use it in intellectual or public discourse is an attempt to dictate the terms and parameters of such discourse. This is done without even offering cogent arguments as to why it’s a non-concept. I for one don’t accept this kind of attempt at censoring discourse and making certain critical concepts in political economy unthinkable.

  40. Tim Macknay
    March 16th, 2016 at 11:40 | #40

    @Ikonoclast
    So you admit no-one is really claiming it then.

  41. Ivor
    March 16th, 2016 at 12:21 | #41

    @Tim Macknay

    If someone says a term is an “empty” term, this is saying its content does not exist.

  42. Ikonoclast
    March 16th, 2016 at 12:53 | #42

    @Tim Macknay

    No, I don’t admit that. Ronald Brak and Ernestine Gross are claiming that the term “capitalism” has no meaning and no content.

    Ronald Brak wrote: “Ikonoclast, if you can’t give a definition for the word capitalist, then please stop using the term as it is useless and no longer functions as a word. Instead, please use terms that specifically describe the situation you are discussing. If you think about it, you will see that if you don’t do this and instead use the letter arrangement “capitalism” it will not be possible for myself or others to understand what you are saying without stopping to ask you just what you choose it to mean – neither more nor less, in each particular instance you employ it. And that would be, and is, tedious.”

    I had in fact given several definitions from different sources. The definitions certainly had common elements. I tried to point out to Ronald Brak that demanding simple definitions or explanations for a complex system and its pheneomena is quite a contradiction. However, in my opinion the simple definitions provided enough basics for a person who genuinely wanted to understand what I meant and had at least some background in the issues. Ronald Brak has given enough evidence in other posts, like those on solar and wind power, that he is easily intelligent enough to understand political economy concepts. However, I think he does not seem to have enough background in the subject. That is all.

    Ernestine Gross wrote to (Ronald Brak); “I second your request for Ikonoclast regarding ‘capitalism’ and ‘capitalist’. Ikon’s post are often insightful and well written, except for his insistence of using the said so far empty terms.”

    So, notwithstanding what I had written and quoted and linked to, Ernestine Gross determined that I had still left “capitalism” and “capitalist” as empty terms (or that all extant writers on the subject had done so). E.G. is a professor of economics I believe. Clearly, her objections come from a different direction than Ronald’s and I would be foolish to say something like “You don’t know what you are talking about.” I said I was puzzled. I did finally say that the concept-emptiness of the disputed terms was asserted but that no cogent argument was advanced in this thread as to why they should be regarded as empty terms.

    I can only suspect that a E.G.’s objections come from a well thought out perspective entailing any or all of these premises;

    (1) Mathematisation (interpreting or expressing mathematically) of economics is the only valid approach to economics whereas language explanations and language philosophy of economics, or political economy, are in general empty and offer no insights.

    (2) Institutional economics, in at least some forms, might offer the one counter-case to the general contention of point 1.

    (3) There is no overlap between Marxism (or Marxian thinking) and Institutional economics.

    Now, as I say, the above are NOT my postulates. They are my best guess of E.G.’s postulates and what lies behind her rejection of “my” “empty terms”. I contend of course that they are neither my terms nor empty terms. There is a large, extant literature where the concept value of these terms can be investigated if people wish to undertake that investigation.

  43. Tim Macknay
    March 16th, 2016 at 13:30 | #43

    @Ikonoclast

    No, I don’t admit that. Ronald Brak and Ernestine Gross are claiming that the term “capitalism” has no meaning and no content.

    I think you are making a straw man argument. My interpretation of Ronald and Ernestine’s comments are that they not denials that “our economy has a certain organising principle which might be characterised by the term ‘capitalism'”, but rather, are expressions of frustration at your inability to give a coherent account of what you mean by it.

    Nor do I think that that Ronald and Ernestine have claimed that capitalism “is a non-concept and we ought not or should not use it in intellectual or public discourse”. What they have claimed is that your usage of it is confusing, if not incoherent.

    Their claim isn’t based on an obtuse or narrow-minded reading of your comments.
    Ronald stated in an earlier comment that he “thinks” he knows what capitalism is. I also “think” I know what capitalism is, that is to say I think I have the gist of it, but I recognise that it is (a) a pretty fuzzy concept) and (b) capable of having different meanings depending on the context. Despite your and Ivor’s frequent use of it, I’ve seen no evidence that your grasp of it is any better than Ronald’s or mine, frankly.

    The various definitions you have given would, in some instances, give an entirely different account of what a non-capitalist society would or would not look like (as Ronald pointed out). This isn’t helped by the fact that you and Ivor, despite both claiming to have a good grasp of the concept, cannot agree on whether or not certain kinds of economic activity are, or are not, capitalist.

    It’s one thing to generally discuss features of our society as a capitalist one – the vagueness and complexity of the concept pose no difficulty in that context. But when you repeatedly assert that specific problems (like global warming for example) can only be addressed by getting rid of capitalism, in order for your statement to be meaningful and informative you need to be able to specify exactly what needs to change (e.g. what qualifies as ‘getting rid of capitalism’) in order to solve the problem, and why those changes will lead to a solution. Otherwise, your comments of that nature are no more than a Marxist equivalent of shouting “Praise God Hallelujah!”

  44. Ivor
    March 16th, 2016 at 13:46 | #44

    @Tim Macknay

    If today’s society was a socialist society and pursued growth with fossil fuels because this maximised productivity – then it would be clear that the only way of address in climate change would be to get rid of the prevailing form of socialism.

    If society was feudal – or mercantile, or slavery, and various greedy bourgeois types demanded fossil fuel to produce wealth – then the same applies. In order to address climate change in these societies you need to abolish, or thoroughly regulate, the underlying political economy.

    If you want to challenge this then in order for your statement to be meaningful and informative you need to be able to specify exactly what needs to change within capitalism in order to solve the problem.

    The problem, cited earlier, is for the globe to reduce CO2 by 57% (Keeling video I linked to) which means the developed world must reduce by significantly more.

    As with nicotine, and as indicated by the stances of coal and oil capitalists, this they will not do – because they must base their activity on maximising profits.

    Any enterprise (socialist, cooperative, capitalist) that seeks to maximise growth irrespective of climate and social catastrophe, must be overthrown.

    Say hi to your God for me along with your Hallelujah.

  45. John Foster
    March 16th, 2016 at 14:05 | #45

    In relation to the discussion on climate change, readers may be interested in our new article in Plos One:

  46. John Foster
    March 16th, 2016 at 14:06 | #46

  47. John Foster
    March 16th, 2016 at 14:08 | #47

    Sorry, can’t get the link to work!

  48. Tim Macknay
    March 16th, 2016 at 14:09 | #48

    @Ivor
    For the record, my comment was addressed to Ikonoklast. However, I’ll respond anyway out of an abundance of generosity. 😉

    If today’s society was a socialist society and pursued growth with fossil fuels because this maximised productivity – then it would be clear that the only way of address in climate change would be to get rid of the prevailing form of socialism.

    Just the “prevailing form”? So do you agree with Ikon that addressing global warming requires getting rid of capitalism, or just something called “the prevailing form of capitalism”? Does this mean global warming can be addressed while retaining capitalism, but just not the “prevailing form” of it?

    If you want to challenge this then in order for your statement to be meaningful and informative you need to be able to specify exactly what needs to change within capitalism in order to solve the problem.

    I presume that this is some sort of attempt to “cleverly” reflect my own statement back at me. Of course I don’t need to spell out what needs to change “within capitalism” (as you put it) to address global warming – that job has been done by a plethora of government departments, think tanks, research agencies and consultancies around the world many times over. Most of these entities are in agreement that there is a need to phase out the fossil fuel industry, or to put it another way, to rid rid of “the prevailing form of capitalism”.

    Any enterprise (socialist, cooperative, capitalist) that seeks to maximise growth irrespective of climate and social catastrophe, must be overthrown.

    I actually agree with you, which I admit surprises me. It is entirely consistent with my own view that the issue of addressing global warming is independent of (and more important than) what sort of political economy we live under.

    I must say I find the definitive, emphatic way in which you deliver what must be said are rather feeble arguments highly entertaining. I don’t have a god, sadly, but if I did I would definitely say hi for you. 🙂

  49. Ivor
    March 16th, 2016 at 14:25 | #49

    @John Foster

    Your link works with a bit of tinkering.

    Click This

  50. sunshine
    March 16th, 2016 at 14:31 | #50

    I dont know if it will help but a little book about Socialisms various forms asserted that the element in common to all was that disadvantage should not be allowed to become entrenched anywhere so as to repeat itself generation after generation.

    At present I think that the lay persons (Evangelical ,Neo-lib and Libertarian influenced ?) meaning of Capitalism stands in opposition to that and would also include the possibility of enriching oneself without moral or physical limit. In the popular mind at present there may not be much more to it than that and anyone questioning such would quickly be dismissed as a naive or malignant Socialist.

  51. Ivor
    March 16th, 2016 at 15:03 | #51

    @John Foster

    Footnote 4

    UNFCC (2010) Cancun Accord. Cancun: UNFCCC.

    is inadequate or is there a misunderstanding;

    In other words, which Agreement, or Decision identified

    “… CO2 emissions cuts of 80% [4], to maintain political, social, fuel and climate security.”

    I thought Cancun just recognised that we need to keep 80% of fossil fuel reserves in the ground.

  52. Ken Fabian
    March 16th, 2016 at 15:06 | #52

    Prevailing forms of energy production need to change and that is independent of style of governance. I think the primary problem with respect to climate action isn’t the state of mix in mixed State and Market economies but of the capture of the State by vested interests – interests that decide where they stand on such an issue according to how it impacts near term competitiveness and profitability, not the quality of the expert advice on longer term climate and it’s responses to human activities. Whatever the system those holding offices of trust and responsibility need to act responsibly and currently, on this issue they don’t. And it seems to me the shorter term considerations, including pervasive political influence as well as their personal advancement and remuneration, seems to require that they don’t.

    We have legal systems that should, in theory, be able to assign responsibility where activities have harmful consequences – normally I would expect those in positions of trust and responsibility to take the expert advice available seriously at risk of charges of criminal negligence. I suspect much of the high value of credentialed maverick expert voices willing to misrepresent the work of their professional peers and provide more agreeable expert advice is in providing a ‘reasonable’ justification for ignoring mainstream advice and carrying on regardless, more even than the bamboozling the general public. Having a confused public and the option to spin the issues such that their short term decisions can be construed as in the public interest eg keeping profitable, royalty paying mines operating, keeping jobs in the fossil fuel sector secure etc, provides further justification.

    Realistically we can’t expect the common law system to protect us because it is, like the advocacy services of political parties and governments, something that can be made to bow to wishes of the highest bidders. Not to mention the multi-generational nature of the climate problem makes assigning fault or responsibility problematic within a system that works best with issues where the consequences are more immediate and directly attributable, where assigning responsibility strongly discourages similar activities. It will take legislation rather than lawsuits for assigning responsibility to get ahead of the game and divert the decision making.

    I think we have the civil mechanisms in theory but in practice a kind of broadly sanctioned corruption in support of those who have economic power pervades our systems of governance – and I’m not sure that’s an issue of capitalism vs socialism; it applies to them all.

  53. Ikonoclast
    March 16th, 2016 at 16:10 | #53

    @Tim Macknay

    It may be that my own description of capitalism and some of its possible alternatives is incoherent. However, I consider that the basic definitions of capitalism which I quoted were coherent. Certain other commentators also thought the quoted definitions I gave were coherent enough to understand and said so.

    I also made a point (which has a philosophical basis), about the modus operandi of demanding over-simplistic definitions, and over-simplistic definitions only, for complex system phenomena and then complaining when said over-simplistic definitions are not entirely clear and/or do not cover all cases and all relations. Quite frankly, this is an unreasonable and unproductive way to conduct a debate about complex ideas. Indeed, it functions to stop debate which is probably its precise purpose.

  54. Tim Macknay
    March 16th, 2016 at 16:17 | #54

    @Ikonoclast

    I also made a point (which has a philosophical basis), about the modus operandi of demanding over-simplistic definitions, and over-simplistic definitions only, for complex system phenomena and then complaining when said over-simplistic definitions are not entirely clear and/or do not cover all cases and all relations. Quite frankly, this is an unreasonable and unproductive way to conduct a debate about complex ideas. Indeed, it functions to stop debate which is probably its precise purpose.

    I don’t disagree with this point, but I think what your interlocutors were doing was responding to your habit of making sweeping remarks that such-and-such a problem is caused by capitalism or cannot be solved without getting rid of capitalism, without adding any further context. Invoking complex and fuzzy concepts in such a sweeping way is also, I think it’s fair to say, “an unreasonable and unproductive way to conduct a debate about complex ideas”.

  55. Ikonoclast
    March 16th, 2016 at 18:23 | #55

    @Tim Macknay

    We’ll have to agree to differ.

  56. Tim Macknay
    March 16th, 2016 at 18:46 | #56

    @Ikonoclast
    Fair enough. Personally I don’t object to you making statements (sweeping or otherwise) concerning capitalism, although I admit that I do occasionally find some of them less than informative. But I imagine you feel the same way about many of my own comments and remarks. 🙂

  57. Ikonoclast
    March 16th, 2016 at 19:04 | #57

    @Tim Macknay

    To expand on why I said “We’ll have to agree to differ.”

    I have on many occasions on this blog added further context, often by links and quotes. So, I don’t agree that I have simply been “fuzzy” and “sweeping” in my various criticisms of what I and others term “capitalism”. However, we will clearly have to agree to differ in the sense that you apparently see the accumulated evidence I offer as “fuzzy” and “sweeping” and I do not. I see it as empirically valid. Perhaps the following passage from the paper “Capitalism’s Environmental Crisis—Is Technology the Answer?” by John Bellamy Foster will provide an example of the kind of evidence and analysis which I consider indicates that capitalism is not the system to provide the solutions to the problems it has caused.

    “Still, it would be wrong to see this (the climate crisis) as a mere technological problem or one of fuel efficiency, since the technologies that would allow us to avoid such a rapid buildup of carbon dioxide in the atmosphere have long existed. If we take transport, for example, there have long been modern means of transportation, particularly public transit, that would vastly reduce carbon-dioxide emissions compared to a transport system built around the private automobile, and that would actually be more efficient in terms of the free and rapid movement of people as well. Instead, the drive to accumulate capital pushed the advanced capitalist countries down the road of maximum dependence on the automobile, as the most efficient way of generating profits. The growth of the “automobile- industrialization complex,” which includes not simply automobiles themselves but the glass, rubber, and steel industries, the petroleum industry, the users of highways for profit (such as trucking firms), the makers of highways, and the real-estate interests tied to the urban-suburban structure—constitute the axis around which accumulation in the twentieth century largely turned (Sweezy, “Cars and Cities,” Monthly Review, vol. 23, no. 11, April 1972).”

    And

    In Paul Baran and Paul Sweezy’s Monopoly Capital, which was heavily influenced by Schumpeter’s business cycle theory (in addition to the theories of Marx, Veblen, Keynes, and Kalecki), the authors argued that as a historical system, capitalism has always been dependent on epoch- making innovations. These are the kinds of innovations that alter the entire structure of production and the geography of production on a massive scale and around which the bulk of investment comes to cluster.

    For Baran and Sweezy, three epoch-making innovations had come into play in the history of capitalism—the steam engine, the railroad, and the automobile. What distinguished the automobile in this respect is that it served as an epoch-making innovation twice—in two stages of automobilization. The first was the expansion of automobile production in the period up through the 1920s, including the beginning of the building of highways. The second was the massive buildup symbolized by the construction of the interstate highway system, the destruction of rival forms of public transit, and the accelerated rate of suburbanization that occurred immediately after the Second World War. It is not too much to say that the dominance of the automobile was associated with an entire regime of production and consumption, which has underpinned and still underpins accumulation in the advanced capitalist states.*

    It is this automobile-industrial complex that is at the heart of our dependence on petroleum today and that accounts for the largest portion of carbon-dioxide emissions. At the time of the Gulf War with Iraq, President Bush told the population of the United States that the purpose of the war was to defend “our way of life.” Everyone knew what this meant: petroleum. Jevons had called coal the “general agent” on which the entire British industrial system depended and the economical use of (or cheapness) of coal as what allowed industry to thrive. Today petroleum plays an equally dominant role in our industrial system.

    The capitalist class is divided when it comes to reductions in carbon-dioxide emissions to slow down the rate of global warm ing. A significant part of the ruling class in the United States is willing to contemplate more efficient technology, not so much through a greatly expanded system of public transport, but rather through cars with greater gas mileage or perhaps even a shift to cars using more benign forms of energy. Efficiency in the use of energy, as long as it does not change the basic structure of production, is generally acceptable to capital as something that would ultimately spur production and increase the scale of accumulation (leading to the Jevons Paradox). But a very large and powerful segment of capital in the United States is not willing to accept even this, because greater gas mileage points generally to smaller engines and smaller cars. Auto producers today, more than ever, are making the bulk of their profits from the production of large vehicles, with the growth in the market for sports utility vehicles and minivans. Henry Ford II’s well-known adage that “minicars make mini profits,” is still the governing principle. As for the petroleum interests, their vested interest in promoting the demand for oil is obvious. Viewed from this standpoint, it is scarcely surprising that there were virtually no votes to ratify the Kyoto Protocol within the US Senate.

    At every point, meanwhile, capitalists and their acolytes have blocked the implementation of solar power alternatives, some of which are entirely feasible at this stage. Corporations have sought to take over solar power from the grassroots movement, not in order to promote it, but in order to hold it in abeyance. Under capitalism, it is those energy sources that generate the most profits for capital—of which solar power is certainly not one—that are promoted, not those most beneficial to humanity and the earth. This story has been told by Daniel M. Berman and John T. O’Connor in Who Owns the Sun?

    None of this, of course, should surprise us. Thorstein Veblen, who might, along with Rudolf Hilferding, be considered one of the originators of the theory of monopoly capitalism, emphasized the fact that capitalism, although it promoted a certain narrow kind of bottom-line efficiency, nonetheless represented a system of prodigious waste from any rational-planning perspective such as that of the engineer. He characterized the oil industry as one of “clamorous waste and mishandling” that led inevitably to “big business and monopoly control” (Absentee Ownership, 200-201). For Veblen, the whole industrial system under monopoly capitalism (or, as he called it, the system of “absentee ownership”) was permeated by reckless and useless consumption of human and natural resources, associated with the dominance of pecuniary goals over rational production. “The distinction between workmanship and salesmanship,” he observed, “has progressively been blurred…until it will doubtless hold true now that the shop-cost of many articles produced for the market is mainly chargeable to the production of saleable appearances” (Ibid., 300).

    The sales effort has so penetrated into production itself that the use value criteria for commodities has been undermined and transformed by the needs of exchange value in quite radical ways. From this it is a small step to the Galbraithian “dependence effect”—that what we consume is dependent on the nature of production, rather than the reverse, as assumed in the “consumer sovereignty” hypothesis of neoclassical economics (Galbraith, The Affluent Society, chapter 11). Control over production, coupled with the force of modern marketing, has given capital the power to manufacture “needs” (i.e., desires) along with products. In fact, “product development” in the giant corporation is usually seen as a subdivision of marketing. Journalists never tire of pointing to the love of the automobile in the United States. But such “love” is more often than not a kind of desperation in the face of extremely narrow options. The ways in which cars, roads, public transports systems (often notable by their absence), urban centers, suburbs, and malls have been constructed mean that people often have virtually no choice but to drive if they are to work and live. Under these circumstances the car (or minivan), which consumers seem to crave, also becomes a kind of prison, made more tolerable (if only barely) by the introduction of cell phones and other gadgets. Meanwhile the social costs pile up. “Capitalism,” as K. William Kapp declared in The Social Costs of Private Enterprise,

    must be regarded as an economy of unpaid costs, ?unpaid’ in so far as a substantial portion of the actual costs of production remain unaccounted for in entrepreneurial outlays; instead they are shifted to, and ultimately borne by, third persons or by the community as a whole (231).

    In such a system, it makes no sense to see possibilities for sustainable development as limited to whether or not we can develop more technological efficiency within the current framework of production—as though our entire system of production, with all of its irrationality, waste, and exploitation has been “grandfathered” in. Rather, our hopes have to be pinned on transforming the system itself. This means not simply altering a particular “mode of regulation” of the system, as Marxist regulation theorists say, but in transcending the existing regime of accumulation in its essential aspects. It is not technology that constitutes the problem but the socioeconomic system itself. The social-productive means for implementing a more sustainable relation to the environment within the context of a developed socioeconomic formation are available. It is the social relations of production that stand in the way.” – John Bellamy Foster.

  58. Tim Macknay
    March 16th, 2016 at 20:23 | #58

    @Ikonoclast
    Oh, so by “agree to differ” you actually meant “continue to argue”.
    The quotes in your comment seem to come from a book by John Bellamy Foster from 2002. Has anything changed since then that might be relevant to his thesis? Patterns of US automobile consumption and use? Greenhouse gas emissions?

    To be honest, I’d prefer to stick with “agree to differ” than continue to argue with you, but I feel I should set out (again) part of my response to your claim over on the Parallel Universes thread that anyone supporting what you called “moderate left” approaches to climate change were really just ideological apologia for capitalism. As I said on that thread, I think that:

    – Getting societies to reduce greenhouse gas emissions is clearly difficult. However, the plethora of policy and technology tools to address global warming, and modelling that indicates they can be effective at moderate cost, lend themselves to the view that it can be done;
    – there is no reason to suppose that a transition to socialism will make addressing the issue any easier*;
    – there is no plausible strategy for a transition to socialism in the short to medium term; and
    – global warming needs to be dealt with in that time frame.

    *In my earlier comment I noted that the experience of 20th century ‘actually existing socialism’ afford no reason to suppose that planned economies addressed environmental issues more effectively than capitalist ones. You’ve since clarified that you don’t envisage socialism in those terms, but instead you envisage what you call an organic transition to a system that would be differentiated from the present one in various ways, in many respects subtly, but most significantly perhaps by the fact that economic activity would be dominated by worker-owned cooperatives and state owned enterprise rather than the current ownership structures, and that rent incomes would be abolished. That picture has some appealing elements. There is nothing in it, however, that suggests that a society with those characteristics would necessarily act more rationally or rapidly to address global warming than the current one. And even if it did, for some reason not articulate din your description, the admitted time necessary to undertake an orderly transition would rule out the ability to successfully address global warming once that system was in place. Global warming would need to be addressed first in any case, while the system was still capitalist.

    Those are the reasons why I regard the insistence that global warming can only be addressed by getting rid of capitalism to be a red-herring. I certainly don’t dispute that addressing it under capitalism is difficult. But whether capitalism is to be gotten rid of or not, it appears to me that global warming needs to be addressed whether or not, and almost certainly before, socialism arrives.

    One other thing – I didn’t accuse you of being ‘fuzzy’, I said that capitalism was a fuzzy concept. After all the definitions, caveats, clarifications and such that have flown back and forth, surely you don’t dispute that?

  59. Ikonoclast
    March 17th, 2016 at 06:58 | #59

    @Tim Macknay

    I do still dispute a considerable number of things but as you point out I broke my own offered “truce”, so I will add no more now on this thread. 😉

  60. John Foster
    March 17th, 2016 at 10:34 | #60

    @Ivor
    Thanks!

  61. Xevram
    March 17th, 2016 at 15:15 | #61

    Hi all, this thread mostly seems to be dealing with climate change and mitigation etc. Ill try not to mention capitalism. Im an economics neophyte, however Im doing some reading and thinking about externalisation of costs (EOC), particularly in regards to Australian power generation companies. How is that the EOC is not seen, talked about or measured as an impact? Well that is how it seems to me. Thanks for your time and apologies if I am derailing anything.

  62. Ikonoclast
    March 17th, 2016 at 15:56 | #62

    @Xevram

    That concept certainly gets talked about from time to time on this blog. When I talk about it, I use the terminology “negative externalities”. I guess the two are approximate synonyms but I am no sort of trained economist either. Whether EOC is talked about or not probably depends on who is doing the economic analysis. Some sectors of the economy have a vested interest in sweeping EOC under the carpet.

    You can write about anything in a sandpit so you don’t have to worry about derailing anything. There is some tendency for a sandpit to to stay on the topic of the first post but it’s not a hard and fast rule so far as I know.

    Feel free to talk about capitalism in a sandpit if you wish. Beware of mentioning it too much in other threads like I have. 😉

  63. Ikonoclast
    March 17th, 2016 at 19:23 | #63

    Ernestine Gross,

    There are a couple of typo corrections in this repost.

    A while ago, I spent a little time pondering Piketty’s formula;

    r GT g or Return on capital greater than growth. Of course, he is saying IF that happens then certain results follow (increasing inequality). Further, he says that this r GT g might be a “norm’ to which we have returned (based on the empirical data).

    I developed a simple thought line that;

    (1) Physics equates physical quantities e.g. Kinetic Energy equals half M times V squared.
    (2) Pure maths (and accounting) equate nominal and/or imaginary quantities.
    (3) Economics, in part at least, seems to equate nominal/imaginary quantities to real quantities.

    We could argue that r is a nominal quantity (being measured in nominal units) and that real economic growth is a real quantity (more of physically quantifiable goods and services). We could then question the validity of equating nominal quantities to real quantities. Does this create a maths or a calculation which has validity? However, in turn it can be argued that we convert the real quantities to a value in a nominal base (money) and thus the equation does equate nominal to nominal.

    Taking a pragmatic view (which I believe fits nicely with empirical views ), we can say that if this method of equating has practical value in producing useful or usable insights or outcomes then it is a valid and worthwhile procedure. To me this arena of the equation of the notional or subjective to the real is an interesting part of economics (of any type) and illustrates a problem area within it. There are practical uses to the procedure but it also contains real dangers both intellectually and practically.

  64. Ernestine Gross
    March 18th, 2016 at 04:34 | #64

    @Ikonoclast

    Part I:

    Piketty used ‘nominal’ data as found in accounting data, including national accounts. Nominal data means monetary values. Hence “r” and “g” are growth rates, one per period, of nominal variables.

    You may recall I once mentioned Piketty’s work does not take ‘real’ resource constraints into account. This is also the case in all macro-economic models I know but not in general equilibrium models. (I am talking about theoretical models not econometric models.)

    In macro-economic models, the term ‘real growth’ means ‘inflation adjusted’ growth (Go to Wiki and search for ‘real versus nominal values’ and ‘GDP deflator’ ). But, you may recall from discussions about ‘asset price inflation’, the resulting ‘real’ values aren’t all that realistic for people in daily life. For example, many if not most young people in Sydney find they can’t buy a house or a unit at the same age as their parents or at all. Real estate has become too expensive, relative to their income and wealth. The RBA has an interactive inflation calculator website: http://www.rba.gov.au/calculator/ . I found this web-site to be a useful tool to play with. I put in a number for a weekly expense for food and grocery items from around 1974 and then asked to give me the corresponding value for 2015. The resulting number was roughly comparable to actual costs in 2015. I put in a number for the cost of a specific house in 1993 and asked for the value in 2015. The resulting value was off by almost 1million. Even after allowing for improvements, repairs, ‘financing costs’, the resulting value was still off by about 1/2million. The estimates are good enough to illustrate the enormous change in relative prices (groceries versus housing) in Sydney, which, by implication means using the ‘consumer price index’ to calclulate ‘real wages’ in Sydney is effectively meaningless once housing is taken into account.

    While many commentators focus on the relationship between r and g in Piketty’s work, IMHO, this relationship is not all that interesting except for macro-economic stability. Piketty relates income to wealth. Again using nominal values (ie monetary values), wealth consists of ownership of physical assets (eg a house) and financial securities (eg shares, bonds, deposits). By asking, how many years of income (a monetary value) is required to ‘equate’ to the monetary value of wealth at a particular point in time (a version of a pay-back period calculation in finance), he is able to show an increase in income inequality between ‘capital’ (ownership of assets) and ‘labour’ (wages). [I hope I didn’t simplify his method too much.]

    End of Part I.

  65. Ernestine Gross
    March 18th, 2016 at 07:35 | #65

    @Ikonoclast

    Repost of Part I (without one web-link)

    Part I:

    Piketty used ‘nominal’ data as found in accounting data, including national accounts. Nominal data means monetary values. Hence “r” and “g” are growth rates, one per period, of nominal variables.

    You may recall I once mentioned Piketty’s work does not take ‘real’ resource constraints into account. This is also the case in all macro-economic models I know but not in general equilibrium models. (I am talking about theoretical models.)

    In macro-economic models, the term ‘real growth’ means ‘inflation adjusted’ growth (Go to Wiki and search for ‘real versus nominal values’ and ‘GDP deflator’ ). But, you may recall from discussions about ‘asset price inflation’, the resulting ‘real’ values aren’t all that realistic for people in daily life. For example, many if not most young people in Sydney find they can’t buy a house or a unit at the same age as their parents or at all. Real estate has become too expensive, relative to their income and wealth. The RBA has an interactive inflation calculator website. Search for RBA inflation calculator). I found this web-site to be a useful tool to play with. I put in a number for a weekly expense for grocery items from around 1974 and then asked to give me the corresponding inflation adjusted value for 2015. The resulting number was roughly comparable to actual costs in 2015. I put in a number for the cost of a specific house in 1993 and asked for the value in 2015. The resulting value was off by almost 1million. Even after allowing for improvements, repairs, ‘financing costs’, the resulting value was still off by almost 1/2million. These estimates are good enough to illustrate the enormous change in relative prices (groceries versus housing) in Sydney, which, by implication means using the ‘consumer price index’ to calclulate ‘real wages’ in Sydney is effectively meaningless once housing is taken into account.

    While many commentators focus on the relationship between r and g in Piketty’s work, IMHO, this relationship is not all that interesting except for macro-economic stability. Piketty relates income to wealth. Again using nominal values (ie monetary values), wealth consists of ownership of physical assets (eg a house) and financial securities (eg shares, bonds, deposits). By asking, how many years of income (a monetary value) is required to ‘equate’ to the monetary value of wealth at a particular point in time (a version of a pay-back period calculation in finance), he is able to show an increase in income inequality between ‘capital’ (ownership of assets) and ‘labour’ (wages). [I hope I didn’t simplify his method too much.]

    End of Part I.

  66. John Goss
    March 18th, 2016 at 15:05 | #66

    Ernestine Gross
    While you are explaining Piketty to us, perhaps you could explain to me how Piketty’s hypothesis of high returns to wealth in recent decades relates to the current situation where real interest rates are low or even negative. Wouldn’t low or negative interest rates lead to a reduction in inequality according to Piketty? But the reverse is happening. What have I missed?

  67. Tim Macknay
    March 18th, 2016 at 15:18 | #67

    Preference-whisperer Glen Druery may be on the lookout for new work now that the Senate reforms have gone through. Someone should be keeping an eye on Leyonhjelm, in case he goes postal.

  68. Ivor
    March 18th, 2016 at 15:38 | #68

    @John Goss

    Where is there the data showing that “the reverse is happening”?

    How does it correlate with low or negative interest rates?

    Lower returns to capital should boost labour’s share so a change in inequality may arise. But where is there the evidence?

  69. Ernestine Gross
    March 18th, 2016 at 19:27 | #69

    @Ikonoclast

    Part II.

    General equilibrium theory (and the extension to agent models) and real resource constraints.

    First a few preliminary remarks. Over time and with the help of reading comments on this blog-site, I’ve come to believe there are two totally incompatible notions of ‘general equilibrium theory’. First, there is what I call the blind belief version, which goes something like this: Market prices will equilibrate supply and demand and this is a good thing. Markets should be ‘free’ to do this. There is ‘freedom of choice’ (‘economic freedom’?) and this is ‘right’ for a ‘free society’. This blind belief version seems to underly ‘neo-classical’ (or classical, don’t know for sure) macro-economic models as found in textbooks. Second, there is a huge body of literature, which uses pure mathematics (and, more recently, computational methods but not including the ‘dynamic stochastic general equilibrium’ model, which is a macro-econ model) to generate theoretical models of economic systems. It is easy to describe the belief version in words because it amounts to regurgitating words. The math-econ version is more difficult to describe- at least for me. Will I be able to find the right words without being misleading? I’ll try.

    Using a broad brush, these math-econ theoretical models do have a few things in common but it is certainly not the above mentioned belief. The driving question is: Under which conditions on ‘the elements’ of ‘an economy’ do we get what type of ‘equilibrium’ (solution), what are the properties of the solution and how stable is the system. All concepts are represented by mathematical objects to facilitate checking for logical consistency.

    The rudimentary elements of ‘an economy’ are people and natural resources (as understood by various branches of natural science) and an ‘institutioal environment’ (how a society is organised). In recognition of economic theories not covering all aspects of human life, the term ‘agent’ is used as the ambrella term for various types of decision makers (eg ‘consumer’, producer’, ‘government’). Note, it is not ‘the’ insitutional environment but ‘an’ institutional environment and it is not ‘the’ economy but ‘an’ economy. Theoretical models differ by the assumption made about the institutional environment. None of the theoretical models which have something to do with ‘market economics’ and ‘prices’ I’ve come across, including my own, has ‘market clearing’ as the only condition of ‘an equilibrium’. All of them have ‘resource feasibility’ as another condition (in contrast to macro-models) and, all of them have a conditon on what constitutes each ‘agent’s’ optimal choice. The entire set of conditions constitute the definition of ‘an equilibrium’. The definition of ‘an equilibrium’ is not independent of the institutional environment (eg complete markets, partially segmented markets, incomplete markets) and the theoretical properties of the solutions differ, too.

    To some extent, the description of an ‘agent’s optimal choice is the same as in micro-economics, which you call ‘neo-classical’. One important difference is that micro-economics typically doesn’t check whether the model builder or presenter has assumed that each consumer has the necessary wherewithal to make the market transactions consistent with the (postulated) optimal choice (ie what looks like a theoretical result is actually a postulate) and the phrase ‘freedom of choice’ is empty (or should I say more precisely, not proven to be non-empty).

    In terms of the outlined GE (market) models, the wherewithal is the ‘market value’ (more on that later) of what a consumer owns. It is called wealth. This could be stuff which empirically (and in applied areas) is called physical assets, financial assets and skills that can be sold in the ‘labour market’ segment of the entire market. So, there is no a priori class distinction between ‘capital’ and ‘labour’. The conceptual framework is so general that, subject to one proviso, it applies to societies where there is empirically a class distinction in the sense that some people own only assets and do not work (difficult to achieve in practice because the owner has to at least hire accountants and advisers and this may be considered ‘work’), while others do not own any assets but sell their skills (difficult to achieve in practice because owning a toothbrush, which lasts longer than say a day, would be considered ownership of an asset, etc, etc), and, the predominant ownership scenario in contemporary countries like Australia where most people own some assets and sell their various types of ‘labour’.

    The proviso is the minimum wealth condition (each consumer has enough wealth to be able to buy at least a little bit of what is on offer – a much stronger condition than the idea of a safety net.) Wealth inequality is possible but only up to a point. (A sociologist might interpret this condition as providing social cohesion – preventing a class structure of ‘rich’ and ‘destitudes’)

    So, how is ‘market value’ (wealth) defined? Money is not a necessary feature of the institutional environments considered, but (normalised) prices are. We call it a ‘price system’. A price system is essentially a list of exchange ratios at which the list of ‘stuff’ can be traded (the list of exchange ratios can be ‘normalised’ in the sense that their sum is equal to 1). It is relative prices that matter. Hence if, the relative price of a particular skill, ‘owned’ by an individual, then, by selling this skill this individual is just as well of as someone who has a bundle of assets which result in the same wealth.

    End of Part II

    PS: I haven’t proof read the above. Apologies in advance for any typos or other errors.

    One more to come.

  70. Ernestine Gross
    March 18th, 2016 at 19:28 | #70

    @John Goss
    Tomorrow, if time allows.

  71. Ikonoclast
    March 18th, 2016 at 20:49 | #71

    @Ernestine Gross

    Thank you for taking the time to write those parts (with one to come). I appreciate it. Already, it gives me a better idea of the type of economics you do. It sounds like cutting edge stuff even though its foundations do go back decades. It kind of parallels the development of complex systems theory in the sense that complex systems theory also started a number of decades ago but only really took off in the last 15 years or so.

    Standard economics textbooks, as you implied, tend to be bowdlerised, simplified and indeed more ideology than genuine substance. Books for the layperson will be even worse in many cases. Your research program area, I guess, is still developing too fast to be laid down in a general readership book yet, even forgetting the problem of rendering maths down into language explanation.

    With those caveats, I am getting a general idea of what you do. If I can write more specific comments which I hope are intelligent, I will write them after the third part. In general though, I am very encouraged and feel, quite frankly, that such an approach in a number of ways is, in spirit if not method, more cousin to a Marxian – Veblenian tradition and to complex systems thinking than it is to neoclassical economics or Australian “economic rationalism”. I don’t know if this is the kind of plaudit you will welcome.

    But let me look at a statement like;

    “The proviso is the minimum wealth condition (each consumer has enough wealth to be able to buy at least a little bit of what is on offer – a much stronger condition than the idea of a safety net.) Wealth inequality is possible but only up to a point. (A sociologist might interpret this condition as providing social cohesion – preventing a class structure of ‘rich’ and ‘destitudes’).”

    This indicates a strong strong social democratic, or even dare I say a “socialist”, orientation in the research program. An interesting question for me to ponder is whether this a “pre-assumption” as it were or a necessary part of the set of parameters to make markets work completely. If it is the latter, it is a potentially system-changing discovery. That’s if we want a system which is efficient, fair and sustainable.

  72. Ernestine Gross
    March 18th, 2016 at 21:31 | #72

    @Ikonoclast

    I first must make one correction in Part II. Please replace the sentence “Hence if, the relative price of a particular skill, ‘owned’ by an individual, then, by selling …” with Hence if, the relative price of a particular skill, ‘owned’ by an individual, is high enough then, by selling …

    Part III

    I believe what is left is for me to comment on:

    “(1) Physics equates physical quantities e.g. Kinetic Energy equals half M times V squared.
    (2) Pure maths (and accounting) equate nominal and/or imaginary quantities.
    (3) Economics, in part at least, seems to equate nominal/imaginary quantities to real quantities.”

    (1) No comment
    (2) I am not sure I understand this statement. I can say financial accounting (the theoretical model) assumes the existence of a monetary unit (nominal, as identified in a previous part). I am talking about the contemporary financial accounting system (based on ‘double entry’) which takes its origin in Luca Pacioli’s work from the late 15th century (accounting scholars have more to say about the history). Pacioli was a monk. (Except that pure mathematicians may be underpaid in monetary terms, relative to other people, I can’t see how pure math is related to ‘nominal’)
    (3). I am not sure I understand this statement. Here the major problem is the word ‘imaginary quantities’.

    If I were to interpret the term ‘imaginary quantities’ as the subjective relative valuation of lists of ‘stuff’ by individuals (‘preferences’, which may differ among individuals) then yes, some parts of economics (eg GE theoretical models) do relate (rather than equate) quantities of physical objects with the preferences and relative wealth weighted valuation of these things ‘in the market’, ie via prices.

    IMHO, Ikon, it is the minimum wealth condition together with subjective valuations (individuals’ preferences – wants) which are the components that are compatible with the notion of democracy. Economists take preferences as given when constructing these abstract theoretical models (mental road maps if you like) without asking how do people form their preferences – social science is larger than economics after all.

    The End

  73. Ernestine Gross
    March 18th, 2016 at 21:51 | #73

    John Goss :

    While you are explaining Piketty to us, perhaps you could explain to me how Piketty’s hypothesis of high returns to wealth in recent decades relates to the current situation where real interest rates are low or even negative. Wouldn’t low or negative interest rates lead to a reduction in inequality according to Piketty? But the reverse is happening. What have I missed?

    Well, I could have spellt out something more clearly. Consider the concept of wealth I introduced in my posts to Ikonoclast. Piketty separated out wealth due to labour services from wealth due to physical and financial assets.

    Call physical and financial assets ‘capital’ (following Piketty). If physical and financial asset prices rise faster than labour service prices (in aggregate) then there is an increase in wealth inequality between ‘capital’ and ‘labour’. Note however, since Piketty uses aggregates, it is easily possible that some people who sell ‘labour type services’ earn more income than other people who own capital.

    I wouldn’t talk about Piketty’s “hypothesis”. His work (the big book) is an empirical study.

    I am confident you can work out why low or negative cash rates are not reducing wealth inequality. Wealth is not cash. Wealth is the market value of things owned by people, including labour type services.

  74. Ikonoclast
    March 18th, 2016 at 23:10 | #74

    @Ernestine Gross

    Again, I take heart from a statement like;

    “it is the minimum wealth condition together with subjective valuations (individuals’ preferences – wants) which are the components that are compatible with the notion of democracy.”

    Basically, we agree. We understand each other when we use words that still have currency like “democracy”. We don’t understand each other when I use old-fashioned words like “capitalism”. You are talking my language when you say “the minimum wealth condition (each consumer has enough wealth to be able to buy at least a little bit of what is on offer – a much stronger condition than the idea of a safety net.” It’s just that in my language I would call that socialism… and support it.

  75. Ikonoclast
    March 19th, 2016 at 08:07 | #75

    @Ernestine Gross

    I have had more time to digest what you wrote. You say that the minimum wealth condition is “a much stronger condition than the idea of a safety net”. How do the models assume, or set by parameters, the minimum wealth condition?

    By your description, the models address markets, agents, institutions and resources. A recent article I read noted that economics concerns production, distribution, exchange and consumption.

    “Production creates the objects which correspond to the given needs; distribution divides them up according to social laws; exchange further parcels out the already divided shares in accord with individual needs; and finally, in consumption, the product steps outside this social movement and becomes a direct object and servant of individual need, and satisfies it in being consumed. Thus production appears as the point of departure, consumption as the conclusion, distribution and exchange as the middle, which is however itself twofold, since distribution is determined by society and exchange by individuals.

    Do you models model production, distribution, exchange and consumption? Let me list them with short explanations (in case we are not using technical terms in exactly the same way).

    1. Production is clear enough. We produce goods and services using labour (mental and physical), machines and natural resources (energy and materials).

    2. Distribution is an interesting concept and may be opaque to those (not you) who ignore fundamental institutional arrangements in our society. In our society, the main distribution can be seen occurring when workers work for a company. Typically, the worker gets a distribution called a wage or salary. The company’s owners get a distribution in the form of possession and control of the goods (or services produced). This is the main form of distribution in our society but social distribution as in welfare is also important.

    3. Exchange is what happens in markets. This is clear enough as a concept though no doubt complex to model.

    4. Consumption is also clear enough. Consumption I assume has to be modeled too so that issues of over-production and under-production (gluts and shortages) could be in turn modeled for their effects on the system.

    Do the models you discuss model these components of the economic system?

  76. Ivor
    March 19th, 2016 at 08:24 | #76

    @Ernestine Gross

    Is this accurate:

    If physical and financial asset prices rise faster than labour service prices (in aggregate) then there is an increase in wealth inequality between ‘capital’ and ‘labour’.

    I thought Picketty’s “r” was not price but return. Do you have a page reference?

    In value terms – maybe at equilibrium, price = return, but then there would be no further increase in inequality.

  77. Ikonoclast
    March 19th, 2016 at 09:16 | #77

    @Ivor

    I think E.G. was not directly talking about the formula (r greater than g) at that point. However, what she says is completely consistent with the formula.

    Firstly, as you say the formula is “rate of return on capital is greater than the rate of economic growth”. So, you are correct that r is rate of return.

    Secondly, as per E.G. “if physical and financial asset prices rise faster than labour service prices (in aggregate) then there is an increase in wealth inequality between ‘capital’ and ‘labour’.” This can be realised when any individual asset owner sells an asset for capital gains. This will contribute to the asset owner’s return on capital. Even while the asset owner holds the appreciated asset it can be used for security on a loan which could purchase, for example, more relatively depreciated labour. This again potentially contributes to the asset owner’s return on capital. Relative price shifts like the one E.G. talks about will (in the aggregate) increase the rate of return on capital.

    We certainly shouldn’t conceive of the return on capital as being limited to interest rates paid on certain sorts of accounts. Petty rentiers, such as self-funded retirees, may be hurt by low interest rates if they keep all their money in Pensioner Security Accounts. Large scale capitalists however can potentially borrow at very low interest rates and then find high returns by investing (speculating) in negatively geared shares and the Sydney property market (for examples). As you and I would agree (along with E.G. I think), the current economic conditions encourage speculation but not productive investment. We have an over-capacity of production (globally and probably in Australia) and worker wages are not sufficient (given the importance of their higher marginal propensity to consume compared to the rich) to buy up the produced goods. Capital would rather speculate than invest productively in this phase. The speculation in Australia is further fueled by a set of foolish policies like negative gearing and housing grants.

    Footnote:

    It has to be remembered that r GT g is a conditional equation. It does not say r is greater than g all the time. It only says IF r GT g then wealth inequality increases. Piketty then goes on to demonstrate there were long periods of capitalism where r was GT than g and one significant period where it was not. Then he shows we are again in a prolonged period where r GT g.

    Thus the conditional logical statement “IF r GT g then wealth inequality increases” says something about a fundamental trend inherent in capitalism IF a given condition is met. What would be really interesting would to be find out what conditions the outcomes of “r GT g” and “r LT g”. Piketty does not address this mystery IIRC. He does map out the historical data which show when the two conditions applied. Piketty’s claimed or genuine ignorance of Marxian scholarship is at this juncture (post his work) unfortunate. It may have been felicitous earlier because it induced him to examine these issues in a new non-Marxian, empirical manner (which is not to imply that all Marxian thinking is empirical). Some of his discoveries have tended to vindicate Marxian thinking whether he would agree with this or not.

    A reasonable conclusion is that there are tendencies in crude capitalism and in modern financial capitalism which drive the system towards the condition r GT g. There are obviously also some counter-tendencies as well. This generic or family resemblance in the behaviours of crude or industrial capitalism and modern monopoly finance capitalism induces me to think “capitalism is still capitalism”. That is to say, it is false in my opinion to assess that “capitalism” is an obsolete word or that it does not point to a useful explanation of a real, pervasive and continuing system.

  78. Ernestine Gross
    March 19th, 2016 at 12:53 | #78

    @Ikonoclast

    Re your post #74.

    I’ve got news for you regarding the philosophical ideas represented in math-econ agents models I talked a tiny bit about.

    The minimum wealth condition is found in the Arrow-Debreu GE model (early 1950s). I don’t know whether GE theorists in general would agree with it, but I did identify the philosophical basis of this model to be ‘laissez faire’ and four quite prominent math economists passed it.

    (The role of this condition in these models is to ensure that the phrase ‘freedom of choice’ is not empty (meaningless, undefined, propaganda, sloppy theorising, ….)

    This as well as subsequent models of this type do not model either ‘capitalism’ or ‘socialism’ (or any other ism word).

    By the way, I do not wish to promote these models; they are neither descrptive nor prescriptive, they are, according to some classification systems, analytical. This type of work may overlap with what seems to be called analytical philosophy.

  79. Ernestine Gross
    March 19th, 2016 at 15:42 | #79

    @Ikonoclast

    Re your 71.

    I have to disappoint you regarding my work. I am retired for quite some time. My GE work, ‘partially segmented markets with multinational firms’ was done in the 1980s. With the GE models with incomplete markets, the GE type research program (in which there were many people involved) has come more or less to an end by the late 1990s. Cutting edge theoretical research is in computational methods of complex systems and in particular game theory and stuff I am no longer aware of.

  80. Ikonoclast
    March 19th, 2016 at 15:48 | #80

    @Ernestine Gross

    I understand your caveats, I believe. There is an inherent and good (I think) moral philosophy position in wanting to ensure “freedom of choice” is not just an empty phrase. I am also fine with this statement;

    “This as well as subsequent models of this type do not model either ‘capitalism’ or ‘socialism’ (or any other ism word).”

    However, I do wonder if these models do model production, distribution, exchange and consumption as I described these in my post 75 via quotes and in my own words. It would be my position at this stage, without further education or convincing, that these would be the minimum required modules (each with several or many model-able parameters) for the model. I would expect there to be some “analogical congruence” (my term) between the model and possible real economies. Bertrand Russel would refer to this as “structural isomorphism”. The structural isomorphism would have to be both of an entity kind (agents, objects, resources) and of a processual complex system kind. Meaning by the latter that processes through time are modelled (changes over time to agents, objects, resources, and quantities of any kind).

  81. Ernestine Gross
    March 20th, 2016 at 09:22 | #81

    @Ikonoclast

    Re your #75

    1. “… the minimum wealth condition is “a much stronger condition than the idea of a safety net”. How do the models assume, or set by parameters, the minimum wealth condition?”

    Suppose there are i = 1, 2, …, m individuals in an economy and there are j = 1, 2, …, n physical objects of choice (‘commodities’). A ‘commodity’ is defined by its physical properties, time and location and state of nature where it is made available.

    The minimum wealth condition is fulfilled if
    a) each individual is ‘endowed’ with (owns) a strictly positive quantity of each of the n commodities such that for commodity prices p = p[1], … p[n], and endowment e[i] = e[i;1], … e[i;n], wealth[i] = pe[i] (inner product of two vectors) is ‘big enough’ to allow each individual buy at least a little bit (more) of any of the commodities by selling a bit or all of what it owns according to the individual’s preferences.
    OR
    b) each individual is endowed with a skill (labour type service), s = 1, …, m such that for service prices P = P[1] , …, P[M] and commodity prices p, each individual can buy at least a little bit of any or all commodities, according to his/her preferences by selling a labour service because the market value (wealth) of the service, say P[i]Q[i] is big enough. (An individual may have more than one skill but it can’t sell more than one at a particular point in time. However, with IT technology, a particular type of service can be sold at various locations at the same point in time. I don’t write this out in notation because it gets a bit messy to write and possibly also to read for people like you who tell me they prefer words.)

    OR (if an economy with a financial system is considered)
    c) each individual is endowed with a strictly positive ownership fraction of each of the k = 1, … K financial securities such that the sum of the ownership fractions is 1 and, for security prices z[k], a vector, and an endowment z(i), a vector, i’th wealth z[k]z[i] is ‘big enough’ to buy at least a little bit of each of the commodities j = 1, …, n, according to his or her preferences, by selling some securities.
    OR
    d) a combination of (a), (b), (c), depending on the model considered.*

    Note, no matter what the source of wealth, the notion of minimum wealth always relates to wealth being ‘big enough’ to buy the most preferred bundle of commodities (goods and services). I’ve seperated goods from services explicitly because of the discussion re Piketty. In many models this is not done because the whole exercise reqires only a bit of interpretation of the concept of a ‘commodity’.

    This gives a clue regarding how the efficiency of an economic system as conceived by these models is to be evaluated, namely the allocation of physical resources in relation to the preferences of people.

    * The introduction of financial securities makes a difference though (not only interpretation) because, as Radner observed, in contrast to commodities (including labour type services) where the total supply has a ‘natural limit’ (a person can’t ever work more than 24 hours a day, the total amount of oil is finite), there is no ‘natural limit’ on the sale of financial securities (short selling is unbounded). (‘deregulating’ the financial system as if it had the properties of a fruit and vegitable market or even the mining industry was, IMHO, a big mistake which was or should have been quite obvious since the mid-1970s).

    2. Producers. I deliberately didn’t talk about producers, although I did mention the agent type ‘producer’, in my initial post because I feared it would become too dense.

    In the class of ‘private ownership economy’ models, all producers are owned by individuals via ownership shares.

    As indicated in the above note, the overriding efficiency criteria is the satisfaction of people, given their preferences and total resource constraints. Hence any objective of the ‘producers’ has to be at least logically consistent with the objectives of its owners. This is by no means a satisfactorily resolved theoretical problem.

    It is impossible for me to say very much about this problem on this blog site, no matter how big the brush I were to use. I can illustrate a little bit.

    In the Arrow-Debreu model there is no problem with the objective of producers because there is a ‘complete market for commodities’ and it opens only once. In my model I partition the Arrow-Debreu model into a finite number of local economies and introduce multinational producers. The difference between local and multinational producers is that the latter have the technological know-how on how to produce in at least 3 local economies while local producers cannot, keeping all else the same (setting aside a lot of technical stuff). Well, this little change in a model resulted in the conclusion that there are wealth transfers possible between the local economies, even if all producers are price takers (‘competitive’) and these wealth transfers (real resources) cannot be undone in the same way as they could be undone by local wealth redistribution.

    I hope I said enough to make the distinction between the blind belief version and the theoretical literature on GE clear.

    3. “By your description, the models address markets, agents, institutions and resources.”

    Not quite. The models have common elements, namely agents, resources (natural environment but not quite satisfactorily represented because of the complexity of biological systems) and an institutional environment. In the class of ‘competitive private ownership economy’ models, the institutional environment is ‘the market’, as conceptualised by a price system. In this class of models and focusing only on those which deal with alternative assumptions about the institutional environment, we have ‘complete commodity markets’, sequence of commodity and financial securities markets, partially segmented markets with multinational producers, incomplete markets. Then there are models which have a government agent, represented by the issuance of a currency unit and wealth redistribution. Then there are models where imperfect competiton is considered. (Imperfect markets has two interpretations, imperfect competition and incomplete markets, or, of course both but I don’t know of a model which considers both at the same time, it doesn’t mean there is none.)

    Now, you make an interesting point, when you write (at the right time in the discussion) that: “since distribution is determined by society and exchange by individuals.”. On the empirical level, it is the legal institutional environment which largely determines ‘the distribution’, in the sense of corporate law, competition law, labour laws, etc etc. For example, the change in the legal institutional environment from a central wage fixing system, imperfect as it may have been according to some criteria, to enterprise bargaining has huge implications regarding ‘distribution’ of profits and incentives. Why would top managers have to be ‘good’ in whatever sense you wish to interpret it if they can negotiate down wages or reduce the real wage by demanding more productivity to show a profit after all?

    IMHO, it is not discussions about ‘capitalism’ vs ‘socialism’, ‘the Left’ and ‘the Right’, no matter how learned and extensive that bring about improvements in a society. In the end they are only words. It the scrutiny of details of legislation over time that matters. Don’t you think JQ is doing an excellent job in this regard?

    ps, thanks for replying to Ivor on my behalf. Nothing to add, really.

    THE END

  82. Ikonoclast
    March 20th, 2016 at 10:45 | #82

    @Ernestine Gross

    You say of the minimum wealth condition, “each individual can buy at least a little bit of any or all commodities”. You define it mathematically. This is all consistent with your statement that these are analytical models. I understand in broad terms and I accept the value of doing analytical economics of this kind. It seems a worthwhile research program to me. (Not that my unlearned assessment means much of course.) The only problem with the definition perhaps is whether a “little bit” of elite luxury goods is a meaningful concept. Can a person in the minimum wealth condition get a little bit of a private Lear jet? Does hiring one for day count? Does being able to satisfy this need at a lower hedonic level by going first class in a passenger jet or even by standard “steerage class” count? Overall, this might be a weak objection. I am just wondering how this concept pans out when applied to the real world?

    What I am directly interested in, is how could a functioning real economy implement policies and measures which would result in the minimum wealth condition being satisfied in practice for all? I mean with this happening either in the current general institutional environment or in another imaginable, “transition-to-able” and apparently feasible institutional environment? What are the practical measures and changes we could undertake to get to the minimum wealth condition being satisfied in practice?

    Historically, it seems we have attempted to meet the minimum wealth condition, or something approaching it, in various ways. You allude to this in general. The old fashioned minimum wage concept was one such practical attempt. In an era when welfare for families was, I assume, much less than it potentially is today, the concept was that a single minimum wage should be enough to feed, clothe and house a family of four including enough to educate the children at least to a basic level, albeit in state provided schools. Of course, this functioned in a sexist environment where women were largely excluded from paying work and were financially dominated by husbands or fathers.

    You say: “IMHO, it is not discussions about ‘capitalism’ vs ‘socialism’, ‘the Left’ and ‘the Right’, no matter how learned and extensive that bring about improvements in a society. In the end they are only words. It the scrutiny of details of legislation over time that matters. Don’t you think JQ is doing an excellent job in this regard?”

    You might be right to some extent but this debate gets complex. The statement; “It is the scrutiny of details of legislation over time that matters.” is correct IF it includes under the concept of “scrutiny” direct action by workers as strikes etc.: that is of workers reacting directly to the impact of unjust legislation, unjust worker-owner relations and so on. JQ is doing intellectual economic and social-democratic scrutiny of legislation over time and yes I do think he is doing an excellent job in that regard. It would be enough for any citizen to do this (as an analyst or as a citizen absorbing such analysis and then voting accordingly) if the system were responsive to what we might call enlightened analysis and enlightened voting behaviour.

    However, there is something about the system which renders it stubbornly unresponsive to the above approach. That is all I will say for now. I mean other than to say I don’t view J.Q. as just doing academic work and intellectual economic and social-democratic scrutiny of legislation over time. I would hazard a bet that he has also done much more direct action work and charity work than I have done. So, I set myself way below him in all those senses. Yet, I still presume to criticise him in what I call the political economy arena because I see a system systemically unable to act in the ways necessary to fully promote equality and ecological sustainability.

  83. Ernestine Gross
    March 20th, 2016 at 16:51 | #83

    @Ikonoclast
    You agreed that the notion of ‘minimum wealth constrain’t and the notion of ‘freedom of choice’ are, in principle, compatible with the notion of ‘democracy’ (we haven’t defined in an analytical sense as yet and I’d like to leave it that way for a long time in our conversations).

    You are now interested in how the abstract definition of ‘minimum wealth constraint’ is related to real life societies. This is of course a relevant question.

    Obviously, if one considers the entire ‘world economy’, then one encounters an obvious problem, namely, most if not all of us, everywhere, don’t even know what is on offer everywhere at any point in time. This consideration is enough to realise one has to interpret the condition ‘in context’, not any arbitrary hypothetical context, but the one we have inherited.

    You chose examples (private jet, etc) which are in the actual context of Australia (and similar countries).

    The wealth distribution is such that there are many people in Australia who couldn’t hire a private jet even for an hour or two. This by itself is not cause for a ‘revolution’, IMO. If everybody can at least pay for an air ticket at least once or twice in their life to experience flying and see far away places or whenever they need or want to fly from say a country town to a city in Australia, I would say we haven’t got a problem with a serious violation of the theoretical condition of the minimum wealth constraint. (Having idle private jets seems to me like a bit of ostentatious wastage of resources, but this is only my opinion.) What if some people can’t afford to get a driving licence or can’t afford a cab fare or can’t afford to hire a car for a day or two or can’t even afford a train ticket? Surely, there comes a point where people are excluded from experiencing even cheaper substitutes of modes of travel such that their life experience and their choices regarding other activities is categorically different from that of relatively more wealthy other members of society with the private jet owners on the other end of the wealth distribution. I can’t determine where these critical points are with respect to locally available goods and services and nor can you. We can only express our opinions. In a democratic society, everybody’s opinion should count in some sense. Detailed social research and opinion pieces in the public press or other mass media provide at least some communication channels for establishing, at least temporarily, some social norm as to what is a fair wealth distribution. (The vexed question of differences among people regarding their physical or mental or social abilities, bad or good luck as well as or including their motivation cannot be ignored either.) As an economist with perhaps more than average knowledge about theoretical models of ‘competitive private ownership economies’, I feel my duty is to say to people who talk markets, competition, private ownership and freedom of choice or ‘economic freedom’ that there is this minimum wealth condition. Talk about it. I say the same to people who talk about ‘capitalism’ vs ‘socialism’.

    Ikon, I now want a longish break from our discussions.

  84. Ikonoclast
    March 20th, 2016 at 19:30 | #84

    @Ernestine Gross

    Understood.

Comments are closed.