- Links for 10-28-14
- 'Climate Change: Lessons for our Future from the Distant Past'
- Adair Turner: The Consequences of Money-Manager Capitalism
Posted: 28 Oct 2014 12:06 AM PDT
Posted: 27 Oct 2014 10:59 AM PDT
David Hendry at Vox EU:
Climate change: Lessons for our future from the distant past, by David F. Hendry: Summary Climate change has been the main driver of mass extinctions over the last 500 million years. This column argues that current evidence provides a stark warning. Human activity is producing greenhouse gases, and as a consequence global temperatures and ocean heat content are rising. Such trends raise the risk of tipping points. Economic analysis offers a number of ideas, but a key problem is that distributions of climate variables can shift, invalidating stationarity-based analyses, and making action to avoid possible future shifts especially urgent.
Economic analysis offers many insights – externalities need to be either priced or regulated, and climate change is the largest ever worldwide externality. All approaches are affected by the possibility of abrupt changes and the resulting unknown uncertainty when distributions shift, making action more urgent to avoid possible future shifts. Adaptation is not meaningful if food, water, and land resources become inadequate. Conversely, mitigation steps need not be costly, and could stimulate innovation. International negotiations are more likely to succeed if the largest players act first in their own counties or groups – also creating opportunities for their societies as new technologies develop.
Planet Earth will survive whatever humanity is doing – the crucial issue is the effect of climate change on its present inhabitants. It is a risky strategy to do nothing if there are potentially huge costs when the costs of initial actions are small. The obvious time to start is now, and the obvious actions are the many low-cost implementations that mitigate greenhouse gases (see Stern 2008 for a list) – just in case.
Posted: 27 Oct 2014 09:43 AM PDT
This is from INET:
The Consequences of Money-Manager Capitalism: In the wake of World War II, much of the western world, particularly the United States, adopted a new form of capitalism called "managerial welfare-state capitalism."
The system by design constrained financial institutions with significant social welfare reforms and large oligopolistic corporations that financed investment primarily out of retained earnings. Private sector debt was small, but government debt left over from financing the War was large, providing safe assets for households, firms, and banks. The structure of this system was financially robust and unlikely to generate a deep recession. However, the constraints within the system didn't hold.
The relative stability of the first few decades after WWII encouraged ever-greater risk-taking, and over time the financial system was transformed into our modern overly financialized economy. Today, the dominant financial players are "managed money"—lightly regulated "shadow banks" like pension funds, hedge funds, sovereign wealth funds, and university endowments—with huge pools of capital in search of the highest returns. In turn, innovations by financial engineers have encouraged the growth of private debt relative to income and the increased reliance on volatile short-term finance and massive uses of leverage.
What are the implications of this financialization on the modern global economy? According to Adair Lord Turner, a Senior Fellow at the Institute for New Economic Thinking and a former head of the United Kingdom's Financial Services Authority, it means that finance has become central to the daily operations of the economic system. More precisely, the private nonfinancial sectors of the economy have become more dependent on the smooth functioning of the financial sector in order to maintain the liquidity and solvency of their balance sheets and to improve and maintain their economic welfare. For example, households have increased their use of debt to fund education, healthcare, housing, transportation, and leisure. And at the same time, they have become more dependent on interest, dividends, and capital gains as a means to maintain and improve their standard of living.
Another major consequence of financialized economies is that they typically generate repeated financial bubbles and major debt overhangs, the aftermath of which tends to exacerbate inequality and retard economic growth. Booms turn to busts, distressed sellers sell their assets to the beneficiaries of the previous bubble, and income inequality expands.
In the view of Lord Turner, we have yet to come up with a sufficiently robust policy response to deal with the consequences of our new "money manager capitalism." The upshot likely will be years more of economic stagnation and deteriorating living standards for many people around the world.
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