Thursday, 6 September 2012

German Call for EU Programme of Investment

Nat O'Connor: The major German social democratic foundation (Friedrich Ebert Stiftung) has circulated a cogent 24-page analysis outlining the case for an EU-wide investment programme which, they argue, "must emulate the successful Marshall Plan after the Second World War" in order "to arrest the downward spiral" that the EU currently faces.


Brian P Woods Snr said...

"(iii) sustainable growth can be achieved not by the financial sector but best of all by the real economy."

The Real Economy. Well praise the Lord and pass the credit - er, the debt!

Well at least he recognises that the fiancial sector has well an truly messed up and has consigned the developed economies to long-term stagnation (in respect of aggregate economic growth).

So. If aggregate economic 'growgth' cannot resume - then what? I think you better have some answers Nat. So far its been all bull and bluster on the Left, Right and all stations in-between.

Are ye waiting for the next energy crisis to wash ashore? Or what?

Nat O`Connor said...

@ Brian P Woods Snr

You appear to be asking what kind of 'growth' if any is possible and sustainable. I don't claim to have all the answers, but I would suggest the following:

We can have inflation (i.e. GDP growth equal to inflation). That can help shrink debt.

We can have long-term real GDP growth based on genuine technological improvements and innovation. This may be a modest level of GDP growth compared to what we've seen, but it is what remains when unsustainable bubbles and unsustainable fossil-fuel dependent growth is stripped out of the equation.

Innovation-based growth is more likely to occur in the developing world as they catch up on innovations that are already well established here.

We can also have sustainable growth when people with low incomes who currently cannont meet all of their essential needs are given more to spend.

Brian Woods Snr said...

OK Nat, thanks for taking the time to respond.

Innovation-based 'growth' is a chimera. It is only a marginal activity and is only available to folk who are already well up on the technology curve. You run into the limits quite quickly. You must increase the number of productive (making stuff) employments - using people not robots! And have external markets to sell into.

Now this is a question I pose to all economists I encounter. What is your economic Model-in-Use? No one has ever given me an answer. Like no one. This is very puzzling. My first reaction is that people do not understand what I am asking about. But I know that they DO have a Model-in-Use but have never considered what it may be. Its usually Permagrowth.

Now Permagrowth is a failed economic paradigm but this is not being acknowledged. The alternative (and a very unpleasant one is Sustainability).

Sustainable 'growth' means that your aggregate economic activity decrements arithmetically on an annual basis. This has the most profound implications for all the sacred cows of economics. No politician would be able to seelit to their voters. So no sustainable 'growth'. We cannot carry on with Permagrowth. So whither economics? This is a serious question and I have yet to see any meaningful intellectual attempt to even acknowledge the question, let alone discuss any of its implications let alone explain it.

This is a 'tongue-in-cheek assertion. Its meant to get folk to address some of the issues.

Two litres of Liquid Hydrocarbon Fuel, per person, per day. This is the minimum needed to keep you away from Coffin Corner. Two litres per person per day is not available to most folk. 2l/p/d Will never be available. Liquid hydrocarbon fuels are irreplacable. They have no chemical substitute on this planet. Like none. This guarantees that 4 billion souls are stranded on Coffin Corner.

The Export-land Model of Liquid Hydrocarbon Fuel Availability is predicting a significant decline (within the next decade) in the volume of fuel exported from 30 the major oil producers. Rate of new discoveries are less that the rate of depletion in the existing fields.

Many main-stream economists have a lot of very difficult issues to face up to and I do not see any progress. Actually fresh water supplies are a more pressing issue for humanity. But economists do not go there either.

Thanks again.

Nat O`Connor said...

@ Brian Woods Snr
I should also have mentioned that population growth is obviously another cause of GDP growth, although obviously population too has finite limits.
In a way, population is a good place to start. One of the great social changes in the 21st century may be a move towards a stable global population (maybe somewhere between 9 and 12 billion). Obviously, there will be lots of disagreement on what population level is sustainable and one might suggest that the current 7 billion is already too many people for the planet's finite resources.
Traditionally, one pillar of government policies to promote economic growth has been to encourage in-migration of labour. However, as the focus of our economies changes to higher value production, it may not be economically necessary for so much migration (although some level of migration is good for various other reasons). The challenge then is to make the shift to economies with much higher dependency ratios (i.e. less workers and more people who are retired).
From this perspective, more robots is not necessarily a bad thing. Most people don't want to work in a factory, but they want a decent job and income and they go to work to achieve that. There is nothing wrong with making some jobs obsolete, as long as the gains from technology are harnessed by society to provide higher value jobs, like social services and care for older people, which a higher dependency ratio will require.
I don't agree with you about innovation being limited. There is 'low tech' as well as high tech innovation. Any improvement in how we work can be innovation and such changes are certainly not limited to those high up the technology curve.
I certainly don't ascribe to 'permagrowth' as a model-in-use, if that means unsustainable growth-at-all-costs based on resource depletion. However, we can have steady arithmetic growth based on population plus inflation plus innovation. It certainly won't be GDP growth as we know it, but more like the holistic measurement of social and economic progress the French government commissioned (
When population decrease is factored in over time, the overall economic output of a given country may well be expected to decrease, but what will become more important is output per capita and output per person in the labour force.
As for hydrocarbons/fossil fuels, there is certainly a massive political problem. Unfortunately, there are probably enough fossil fuels (especially coal) to allow us to generate sufficient greenhouse gas to critically endanger ourselves and a lot of other life on the planet through global heating long before market dynamics would cause the price of fuel to act as a sufficient brake. It will therefore require political interventions to halt the over-reliance on carbon (i.e. investment in cleaner alternatives, carbon taxes and much more). In a competitive global economy there is risk of the lowest standards winning out, as countries will fear becoming uncompetitive if they are too strict. Greening the economy is an enormous challenge, but it is about much more than critiquing growth per se.

Brian Woods Snr. said...

Nat, thanks again for keeping this commentary alive. I do appreciate your engagement.

OK, we have some points of difference. Goes with the territory as they say.

"Most people don't want to work in a factory, but they want a decent job and income and they go to work to achieve that."

Why is any job (as a generic for waged employment) necessary in the first place? What's the economic Model-in-Use here? Robots do not pay taxes, humans do. Robots do not vote, humans do. Robots do not suffer from diseases or senility. Humans do.

"I don't agree with you about innovation being limited."

OK. The Physical Law will set technical limits to all engineering (technological) innovations. This is absolutely true for the macroscopic world and much of the microscopic as well. Below the microscopic level quantum physics takes over. We live in the macroscopic world. Our economic activity is embedded in macroscopic processes. Limits apply - with a vengence!

"However, we can have steady arithmetic growth based on population ..."

Eh, Nat, population increase (so far)is ahem, rather rabbit-like! I think we better leave this topic alone! Arithmetic economic growth would be acceptable IF the population was declining in parallel. Otherwise we are back with the diminishing finite resource prolem. Are you familiar with the writings of Albert Bartlett?

" In a competitive global economy there is risk of the lowest standards winning out ..."

They have! Easter Island reprise? Which is why I am alarmed.

"Greening the economy is an enormous challenge ..."

Affirmative. Its a challenge which will remain unmet. It requires energy to correct an energy imbalance. Entropy rules, KO! Humans never learn, Nature never forgets.

Thanks again.

ps: are those anti-robot devices REALLY necessary?