Thursday, 21 May 2009

Guest Post: Response to Richard Tol on 'Green New Deal'

John Barry: Richard Tol, over at Irish Economy, has an ‘interesting’ take on one of the components of a Green New Deal for Ireland.

Focusing on the conventional economics for recycling he (and others who have responded to his post) use this one aspect of a ‘Green economy’, or the Green New Deal now promoted, to dismiss not only the Greens in government but the idea that somehow the greening of the economy as outlined in a Green New deal is ‘not economic’. Only by conveniently (and standardly in neo-classical economic thinking) excluding both the social and ecological ‘bottom lines’ does this even begin to stack up. With thousands losing jobs in Ireland and a long established (though largely localised) ‘social economy’ recycling industry, are we to simply dismiss the prospect of creating ‘green collar’ jobs here in the recycling industry? Especially if we limit or eradicate the market distorting effects of a rush towards incineration (few jobs, high capital cost and environmental/health costs) there are jobs to be created in an indigenous recycling industry. Why does Richard assume recycling in Ireland has to be capital and energy intensive?

How do Richard and his buddies explain the fact that according to a recent report - HSBC’s Climate Change research ‘A Climate for recovery’ - China, India, South Korea as well as the US are spending so much of their stimulus packages on the environmental goods and services sector? South Korea is spending almost 80% of its entire package on the green economy and climate change sector, while China is spending around 33%. And guess what, they are not all ramping themselves up for the deluge of recylates from Ireland and Europe – but a serious bid for first mover status in an emerging market and the next industrial revolution of the inevitable shift to a sustainable, low carbon economy. According to HSBC, Europe is seriously lagging behind.

But then, trapped in the neoclassical, ‘business as usual’ economic logic, what could one expect from Richard and fellow-travellers? The real ambition for a green economy is to get rid of the notion of waste completely from the production and consumption process, as promoted by the ‘zero waste’ strategy now endorsed by New Zealand and long championed by ecological economists such as Robin Murray (Creating Wealth from Waste).

I particularly enjoyed the exchange between Richard Tol and Brian Lucey to the effect that the greening of the economy is driven by ideological concerns (i.e. the Greens in coalition) and not by ‘economics’ – as if the neo-classical economic position espoused by both Richard and Brian is not itself ideological! Precious! Perhaps both would like to contribute to the recently launched campaign to remove ‘toxic economic textbooks’ from undergraduate economics courses - that is, remove the dominance of the neo-clasical model and allow some genuine debate and pluralism within economics.

The current economic meltdown is not the result of natural causes or human conspiracy, but because society at all levels became infected with false beliefs regarding the nature of economic reality. And the primary sources of this infection are the “neoclassical” or “mainstream” textbooks long used in introductory economics courses in universities throughout the world”

The Greens, just like Richard and Brian, are engaged in political economy – economics driven by underlying political values – to think that a neo-classical economic position is somehow ‘value free’, ‘objective’ or ‘neutral’ is not only just plain wrong but disingenuous. ALL economic proposals are ideological, period. So let’s have a grown-up debate about political economy - not this nonsense that somehow there is a ‘scientific’ and objective position from which we can analyse and make proposals about the economy.

And, as an afterthought, have any of these neo-classical economists thought of the impact of the massive carbon subsidies (vastly greater than the 13 million euro being talked about here for the stimulation of an indigenous recycling industry) which have locked us into a carbon dependent infrastructure for decades to come? A Green New Deal and the creation of a green, low carbon economy is not simply about government investment, but also the removal of perverse carbon subsidies in order to incentivise and encourage public and market actors. But then why let a good argument get in the way of cheap political and ideological-based point scoring?


Richard Tol said...

The purpose of recycling is to generate a material that serves as an input to production and consumption.

Recycled material competes with virgin material. Recycled material typically is of lower quality than virgin material, because of chemical and physical impurities in the source.

Therefore, recycled material has to be cheaper than virgin material.

In Ireland, labour is expensive while capital and energy are cheap. Therefore, recycling in Ireland tends to be labour-extensive and capital- and energy-intensive.

Alternatively, you could offer people in recycling really low wages. After all, they'd compete with Indian recyclers on a few euros a day.

Anyone for a dirty, backbreaking job at €1000 a year?

John Barry said...

The purpose of recyling is to create closed loop production and consumption systems and we need to be moving towards a zero waste policy. Only from a neo-classical 'comparative advantage' perspective- based on the fantasy of the immbolity of capital - does it make sense to ship valuable resources to India to be recycled and then shipped back. Once you add in the externalities conveniently left out of the neo-classical view, not to metion placing any 'economic appraisal' within a wider political and environmental perspective (not just monetary cost-benefit analysis), we begin to see possibilities denied or preemptorily ruled out as 'uneconomic' by the neo-classical model. This is what we should be debating - pluralism in economic thinking

Richard Tol said...

John: Please note that my comment on was about a specific government intervention, namely a subsidy to increase the domestic share of processing recycled materials.

My brain is quite small. It needs focus to work properly. And it cannot comprehend why a debate on pluralism in economic thinking would add anything to our understanding of whether this particular intervention is good or bad for the economy or the environment.

John Barry said...

Richard: thanks for the posts. I think we can and indeed need to do both - examine specific policies - such as recyclying - as well as do some serious 'big picture' analysis i.e. re-examine the frame within which or lens through which examine those specifics. My brain is probably smaller than yours but my point is that there are a number of economic points of view to analyse specific proposals - not just one i.e. the neo-classical economic one. We can, I think, do both, and indeed I think its more important than ever now to engage in some serious root and branch reform and debate about how we understand economics ands look at the available models and it is unhealthy to assume there is only one way of analysing economics surely? We don't think there is one 'true' or 'objective' framework in which to understand and prescribe how politics or society should be, why do we assume this should be the case for the economy?