Friday, 2 October 2009

Green New Deal - The Neo-Classical Empire strikes back

John Barry: Over at Irish Economy, Richard Tol has attacked the Comhar Green New Deal report. What I particularly enjoyed about it and found revealing was the evident display of self-confident 'expertise' and 'authority'.

To take some examples, Richard Tol opines that "Most experts reckon that the transition to a low-carbon economy will take 50 years (give or take a few decades)" - but sadly, we're not told which experts, or that there is a world of a difference between using reformist, orthodox economic tools to encourage the transition to a low carbon (a gentle greening of 'business as usual') and what ought to be done to secure energy security, detox from fossil fuels and combat climate change. The comfortable and comforting assumption which runs right through Richard Tol's analysis (and one of course shared by other orthodox economists) is that politics does not enter the equation and the most we can hope for is a 'market-led' transition to a low carbon economy.

Of course, not even all neo-classical economists shares this view - take Nicholas Stern's view on the economics of climate change. In a recent report, for the German Foreign Ministry, for the G20 summit, he stated that G20 members should “initiate and extend programmes that provide loans to home-owners and small and medium-sized enterprises for boosting energy efficiency in buildings”, and “undertake investments in electricity grid upgrades and extensions, public transportation, integrated freight transport systems and carbon dioxide pipelines for carbon capture and storage projects”. Failure to do so threatens global sustainable growth in his view. This report builds upon a previous report by the London School of Economics ' Grantham Institute for Climate Change the Environment - 'An Outline of the case for a 'Green' Stimulus', which based its analysis using the IMF's assessement that macro-economic stability and recovery required state stimulus packages, and provides empirical as well as theoretical evidence that spending is superior to tradition tax cuts [1][2]

Later in his post, without any supporting evidence, we are told "Green New Deal would raise the price of energy and keep labour taxes higher than needed, the economic recovery is slowed down and jobs are destroyed", but the point of any GND would be to shift taxes from labour to carbon emission - something, of course, outlined in the report from the Commission on Taxation recently. And the whole point of the GND is to jump-start this transition because it makes long-term economic, ecological and energy security sense.

Why I enjoyed this post so much, and why I'll be using it in teaching students about the ethical underpinnings of any theory of political economy, is the following: "I would argue that pension funds should provide pensions, and to that end they need to invest in whatever gives the highest risk-adjusted return, regardless of whether it is green or blue or yellow." - would that extend to investing in countries or companies that abuse human rights? use child labour? use slave labour? or engage in any number of 'race to the bottom' cost-saving measures which raise ethical objections? Neo-classical economics is as political and ethical as any other form of economics, to pretend it has a monopoly on what the economy, how we should conceptualise economics, best expressed in the way neo-classical economists think and assume that their conception of the economy is not only the only 'real' one, but sets the standard and indeed 'grammar' by which ALL other forms of political economy should be judged. Ideological hegemony or what?


[1] Hemming, R, Mahfouz, S, and A Schimmelpfennig (2002): ‘Fiscal policy and economic activity during recessions in advanced economies’ IMF Working Paper 02/87, May

[2] Hemming, R, Kell, M, and S Mahfouz (2002): ‘The effectiveness of fi scal policy in stimulating economic activity – a review of the literature’ IMF Working Paper 02/208, December


Paul Hunt said...

I'm sure Richard Tol, if he so chooses, will be well able to defend his position. However, for me, Richard's post identifies the clear choice between, on one hand, governments setting (and committing to) the policy and taxation regime, facilitating the market mechanisms (e.g., cap-and-trade) and applying the necessary regulation and, on the other, governments being the prime movers, investors, policy-makers, regulators, winner-pickers, etc. Att all times and places, when and where this choice is valid,and applying the tried and tested tools of economic analysis, the former is superior to the latter.


John Barry said...

OK, fair enough - its clear where we both stand on an unfettered market and role of the state etc. but what about the other points raised in my post - for example the ideological bias and dominance of one take (neo-classical)on economics? I'm unsurprised whenever I raise this 'hidden' aspect of the mainstream take on economics that the silence is both deafening and telling. I'm NOT saying neo-classical appraches are always and everywhere wrong etc, all I'm asking for is a) an explicit recognition of its normative assumptions and b) greater pluralism in the debate about economic policies. Thanks for taking the time to respond.

Paul Hunt said...

The difficulties always arise when the economic circumstances are such that some deviation from the first option may be required to achieve a valid policy objective. The configuration of energy policy, regulation and economic organisation in Ireland is so dysfunctional that major reform is required if the objective is to begin to alter the pattern of energy consumption and to reduce carbon emissions in the short to medium term.

But this, of course, isn't on the political agenda. There may, indeed, be a role for direct government intervention in the context of incomplete, inadequate or malfunctioning markets, but only when the fundamental dysfunction is addressed. As a result we are fated to experience expensive, economy-damaging government interventions.

John Barry said...

And the question as to the ideological and normative assumptions of neo-classical economics?.....Go on, you can say it here - you're among free thinkers!

Paul Hunt said...

You jumped into the join between my posts - posting on this site is a pain. By no means "unfettered". Even the most imaginative S-M fan would struggle to conceive of the incentives and constraints I see as necessary. The huge body of theory and evidence has persuaded me that markets are the least worst tool we have to make capitalists (possessors of human, physical or financial capital)jump through hoops to deliver economically and socially useful outcomes. And, to the greatest extent possible, governments should focus on using this tool effectively - rather than intervening directly. There will always be plenty for governments to do in other areas.

John Barry said...

So, just to be clear - the basic ideological position is the following:
Markets are good, but need government regulation
Governments should stay out of markets
Markets deliver for society

And of course none of these are 'objective' or 'scientific' but based on normative assumoptions not about how society or the economy is, but how the economy ought to be.

But may I ask, though I guess I know the answer - what are markets for? what does a market based/organised economy deliver? Namely, orthodox economic growth - which again has a whole range of normative implications and assumptions - ranging from how this acts as a substitute for greater socio-economic inequality, its implications in terms of global justice and the distribution of development opportunities globally; how a sub-system (the economy) can expotentially grow when the larger system (the ecosystem) is finte and fixed; to the really thorny issue of the contribution of this model of economic growth to well-being beyond a threshold. So... if one is not an egalitarian, is not particularly concerned abotu global justice, or ecological limits, or that well-being ought to be a matter for public policy, then its clear - neo-classical economic growth is yer only man. Is what I've said here a complete distortion of your position?

Paul Hunt said...

I'm not dodging your legitimate questions. I'm not keen on labelling - it encourages pigeon-holing and stereotyping (as well as creating carricatures), but we need to distinguish between Neocons, Neo-liberals and Progressives. As I have pointed out on previous posts, the Neocons have shamelessly purloined the neo-liberal brand which has a distinguished pedigree from Adam Smith through JS Mill to Keynes and onto Krugman, Sen and Stiglitz in the modern era. Only for the purposes of this post I would describe Neocons as "Markets everywhere; government nowhere (expect to enforce prperty rights, to clean up the mess they make or to prosecute profitable wars)"; Genuine Neo-liberals as "Markets where possible; government as and when required"; Progressives as "Governments everywhere; and markets only if we really have to".

I know this is probably unfair, but if the cap fits...

John Barry said...

Paul, I think you misunderstand me. I'm not interested in labelling myself, but am asking about the underlying values, and normative principles which each and every theory of political economy has - whether it makes these explicit or not. Each of the three positions you outline - neo-cons, neo-liberals and progressives - have different (and some shared) normative views, all I'm asking for is a greater honesty or self-awareness that none of these positions - and others - are objective, scientific, value-free or non-ideological. That's all. My main gripe is the continuing fiction amongst neo-classical economists that their position on the economy is somehow non-political or non-ethical or non-ideological.

Paul Hunt said...

Thank you for toning down the rhetoric. I trust you realise your posts were becoming a tad "ad hominem". As a first response I would refer you to the subsequent post highlighting Paul Sweeney's reasonably objective bio-pic of Keynes. What you seem to be tilting against is the hijacking of the economics discipline by the Neocons over the last 30 years. Although the distinguished, relevant and humane tradition of liberal economics never disappeared, it was marginalised and it is now being painfully resurrected. What Keynes knew - and what those economists who have built on his insights know - is that unfettered free markets are disastrous, but that excessive state direction and control is equally damaging. Keynes saw if as an empirical and technical task to identify the balance between government and the market in changing economic circumstances. Identifying the appropriate balance is fiendishly difficult, but this should not deter us. For example, I believe many of the posters on are struggling to strike this balance for the Irish economy in the most efficient, effective and humane manner. It isn't helpful when posters on this site carricature the "Dublin Consensus" as being Neocons red in tooth and claw. Nor is it helpful when the default reaction is to advocate signifciant increases in public expenditure and state intervention.

As a second response, I believe Marx was the first influential economic, social and political scientist who recognised that the evolutionary process in humans needs to be arrested, slowed, managed, channelled. Unconstrained we have the ability to consume and destroy ourselves and the planet. The balance between markets and government is equally relevant here.