Saturday, July 31, 2010

In Greed We Trust, Markets Are For Chumps

Why do so many people put their faith in market solutions when push comes to shove even the staunchest proponents, those in the financial sector, rely on the public sector to bail out their sorry asses?

Well, for one, discussions and negotiations are a lot less emotionally charged when we are focused on the machinations of the market instead of having to face up to the fact that we are engaging a group of greedy bastards who don't give a rat's ass about the consequences of their actions or inactions upon anything else than their bottom line.

It's all way too polite for me and shows an incredible naivety with regard to the motivations of those who seek to profit from the free market discourse. When it works in their favor, let us all adhere to the gospel of Milton Friedman and his disciples, when it doesn't, we're all Keynesians now.

When it comes to climate change legislation, forget the cap and trade market-based solution no matter what economic theory may say because the other side ain't buying it.

When facing a zero-sum situation, we shouldn't engage in magical thinking guided by the belief that we are going to find a win-win solution. In this case, take the stick over the carrot.

Indeed, the recent failure to secure meaningful climate change legislation is the latest instance of a myth of Sisyphus situation where the environmentalists are trying to roll a huge boulder up a steep political incline - we're not playing on a level field.

Given the unlikely eventuality of achieving meaningful results within the existing political frameworks, environmentalists should now shift their focus to the courts, politics by other means, and do so on two fronts: environmental issues and democratic reform.

One day the good fight may be taken to the political arena but not in the immediate future.

Sunday, July 25, 2010

Democracy Undone: The US Senate Scuttles Climate Change Legislation

Say good-bye to cap and trade. Once again a group of rich middle-aged white guys effectively veto climate change legislation already adopted by the House of Representatives that would have put a price on carbon emissions. Once again, the deny-and-delay faction chalks up another victory at the expense of everyone else on the planet.

What irks me - above and beyond that Canada is now off the hook to adopt any meaningful legislation to reduce its own CO2 emissions - is the way that it was done.

On one hand, there is the American President, elected by a majority of the popular vote and a majority of the electoral college and the democratically apportioned House of Representatives that support the principle of cap and trade and, on the other hand, there is the malapportioned Senate (each state elects two senators, which means that a voter in Wyoming has seventy times the voting power than a voter in California) that prevents the proposed legislation from coming into force. Taking into consideration that it requires a supra majority of 60 percent to adopt a bill in the Senate, it takes as little as the votes from the states representing 12 percent of the population to block any legislation from passing.

This state of affairs flies in the face of the principle of one person, one vote upheld by the US Supreme Court in Reynolds vs. Sims. Indeed, the Supreme Court has repeatedly struck down state legislation that deviated from the core democratic value of electoral equality. Yet, the inherently undemocratic composition of US Senate remains.

So what gives?

How is it that given we are most likely at a critical juncture of human history that the most influential nation in the world can experience a systemic failure of its democratic institutions and, as a result, jeopardize the long-term well being of the rest of the planet's inhabitants?

Simply put, the probability of catastrophic climate change increases as a consequence of the refusal of the North American English settler states, the US and Canada, to make a break with their colonial past and to fully embrace democracy.

At the heart of the problem is the bicameral Congress in the US and Parliament in Canada. They are both modeled on the British Parliament, which is comprised of the House of Lords and the House of Commons and has a long history of resisting democratic principles: an antiquated voting system, dubious electoral districts, and an unelected upper house that has wielded inordinate political power over the elected lower house. It is this latter feature that the former British colonies retained that allows the US and Canada to circumvent the democratic will of the people.

Although there are significant differences between the American and Canadian Senates, both institutions place significant limits on the democratic aspirations of their respective populations. Most notably, since any proposed legislation in either country must gain approval in the Senate, each body effectively grants a veto to its nation's upper class. In North America a monied aristocracy finds its political leverage in a democratically compromised upper house much in the same way the British hereditary aristocracy exerted its control over the lower classes.

The most important limit concerns the rules from which the economic game is played. Any legislation that proposes a qualitative change to the way money is made is unlikely to pass in the Senate since the monied class has a vested interest in maintaing a status quo that has proven to be very beneficial to its economic well being.

Let's make no mistake. Effective climate change legislation disrupts the status quo and will change the distribution of wealth, and this is the real reason why such legislation will never make it through either upper house.

All the talk about the negative effect on the economy is just a smokescreen for protecting established fortunes and societal status of an existing elite. Indeed, a retooling towards a low carbon economy makes sense both in the short term (millions of jobs and increased expenditures) and the long term (it's cheaper to incur the preventative measures than the economic costs of catastrophic climate change). However, since no one can predict who will come out on top if such game changing legislation were ever enacted - there are always winners and losers as a result of fundamental change - the status quo remains.

I've always wondered who was the bozo that in the distant past cut down the last standing tree on Easter Island. After seeing how the Senates in both Canada and the US have killed climate change legislation, he was probably the Easter Island equivalent of a senator, using an ax furnished by the members of the ruling class.

(To learn more about how the Canadian Senate is in the process of scuttling climate change legislation, see my blog post: The Curious Case of Bill C-311)

Saturday, July 17, 2010

Thanks George W. For Reducing America's GHG Emissions by Seven Percent

While we're at it, we should thank him for reducing the green house gas (GHG) emissions for the entire OECD in 2009 as well. Hell, if it weren't for India and China, global emissions would be down. According to the latest research, the drop in emissions in the OECD was entirely offset by the rise in the Asian giants. Too bad they aren't in our economic sphere.

At first it may seem strange to associate the name of George W. Bush with environmentally friendly economic policies. It's certainly a case of doing the right thing for the wrong reasons. The former American President was loathe to enact any environmentally progressive legislation for fear that it would hurt the economy.

Ironically, it was his unwavering belief in free market economics that paved the way for the onset of the Great Recession and the subsequent decline in economic activity that accounts for the drop in GHG emissions. Perversely, by pursuing the politics of maximizing economic growth at the expense of environmental degradation, the Bush regime actually plunged the developed world into recession and applied the brakes to the underlying cause of global warming: high-carbon economic activity. Talk about unintended consequences.

This raises a fundamental question: could the equivalent reductions in GHGs have been obtained in an intentional manner? I think not. Our ideological commitment to ever increasing economic growth would not allow us to reduce economic activity. As a result,
although we may have reduced the energy intensity of each unit of GDP, overall emissions would have continued to rise.

So, what lies in store for us as we live through what will probably be the hottest year on the planet since records have been kept?

There is the possibility that we will have more of the same. In the Anglo-American sphere, economic policy is moving toward imposing austerity measures in Canada, the UK, and the United States. This could spell economic disaster for the champions of economic growth. As the Nobel Prize winning economist, Paul Krugman, has pointed out, cutting public expenditures while the economy has yet to recover and record levels of unemployment still exist might have the effect of tipping the global economy into a protracted depression.

From an mainstream economic view, this scenario represents an unmitigated disaster. However, from the perspective of the planet, a lengthy period of slow or no economic growth could effectively cap the levels of GHG emissions while allowing us to retool for a low carbon economy. In fact, last year was the second consecutive year in which investments in the development of renewable energy sources outstripped the investments in the development of fossil fuel resources in the US and the EU. If these two trends continue, a scenario could arise in which the return to economic growth could be accompanied by a reduction of GHG emissions as more of the renewables come on line.

Perhaps, unbeknownst to the proponents of neoconservative economics, they could put into place further economic policies that would have the perverse effect of being beneficial to the environment.

Maybe, the invisible hand is connected to a being that has an ironic sense of humor.

Thursday, July 8, 2010

Slaying the Deficit: Target the Innocent Victims or the Culprits?

"The first thing we do, let's kill all the economists."

(Modern adaptation of Henry VI, part 2)

These are trying times for politicians who rely on the advice of economists. Now that the collapse of the financial markets has been averted, at great cost to the public purse, what do we do about the mountains of debt?

There are basically two schools of thought: implement austerity measures to reduce public spending or continue deficit spending to promote economic recovery and once this has been achieved, pay down the debt.

How you respond to this dilemma probably indicates whether you are on the right or the left of the political center. Those on the right prefer austerity measures while those on the left opt for continued deficit spending.

Unfortunately, economics (the dismal science) has little in the way of predictive capabilities, as born out by the massive failure of the vast majority of economists to predict the onset of the Great Recession. This raises the fundamental question, how are we to choose between the two aforementioned options if we cannot be certain of their effects upon the economy?

This is where the economy becomes political. In fact, given the level of uncertainty, this choice is entirely political, a question of with whom do your interests lie.

One thing that we must remember is how we got into this fine mess.

Lest we forget, the principal cause of the Great Recession was the unregulated trading of debt securities. Trillions of dollars from the public sector were then used to forestay a collapse of the financial sector and a subsequent economic disaster in the global economy.

So, who should pick up the tab to set things right, the innocent victims or the culprits?

Indeed, why should those who use public services be asked to bear the brunt of the economic and social costs of the malfeasance and the sector which is largely responsible for this disconcerting state of affairs should get off scot free?

In order to reduce the deficit, cutbacks to social services represent only one option. A second option is to maintain current expenditures and to raise revenues, in particular, a financial transaction tax that would in effect recoup the monies spent to prop up the financial sector and to decrease the possibility that speculative trading would again disrupt the lives of those who toil in the real economy.

Economic prognostications are just a smokescreen for the more fundamental question of whose ox is going to be gored.

For example, in the UK, the government just announced the annulation of a billion dollar expenditure to refurbish their aging public schools and in the United States, elected federal politicians just left for vacation while approximately 3 million unemployed workers were to see their benefits expire. Have a nice summer.

So, which path is Canada going to take? The last budget had a wait and see approach that given the circumstances, I thought was appropriate. In my opinion, the next budget should trigger a federal election since it will entail some very fundamental political choices that await.

This would be a good time to have an electoral system which would bring about a democratic result.

Sunday, July 4, 2010

The Curious Case of Bill C-311

We all have our prejudices, so before I begin, I will share mine. I am an ardent believer in the necessity of reducing global green house gas (GHG) emissions. The scientific evidence cannot be ignored. Severe climate change is occurring and it is being brought about by human activity.

Even if the validity of this premise is uncertain, from a risk management perspective, it is by far more prudent to incur the economic costs of moving towards a low carbon economy than to risk the catastrophic consequences of significant global warming.

Bill C-311 imposes the required limits on Canada's GHG emissions: 25 per cent below 1990 levels by 2020 and 80 per cent by 2050. The Bill was adopted by a majority vote in the House of Commons and is now stalled in the Senate.

Before it can become the law of the land, it needs to be passed by the upper house. However, it is expected that by November the Conservatives will have a majority in the Senate and, as a result, will be able to kill Bill C-311.

This state of affairs is extremely curious.

How is it that a bill adopted by the majority of the elected members of the House of Commons can be thwarted by the majority of an unelected Senate, especially when the recent appointments to the Senate are made by a Prime Minister of a minority government, one that has the support of only 23% of the electorate?

In this case, the Senate would not be acting as an instance of sober second thought; it would be acting in a manner diametrically opposed to the fundamental values of a free and democratic society.

Let us be clear. This is game changing legislation. If adopted, we would have to restructure our economy and the consequences of doing so are unknown.

The million dollar question is who decides?

Are we a democratic nation or are we still an English settler state in which an electoral system and constitutional convention allow a minority of the population to impose its will upon the majority?

If we are democratic, this situation demands an appropriate response to change our political institutions. An unelected body cannot be empowered to overturn the decisions of an elected majority, more so when the members of this body are appointed in a manner that reflects our pre-democratic colonial past.

Presently, Canada has a Prime Minister that favors an elected Senate, and if politics is the art of the possible, a possible solution to our democratic anomaly is to push for an elected Senate that uses a proportional voting method. This would be in keeping with our Commonwealth cousin, Australia, and wouldn't require any constitutional amendments.

As well, if it's still necessary to seek out the approbation of the mother of all Parliaments in Westminster, the coalition government in the UK has announced its intentions to undergo a modernization process that includes a referendum on the voting system for its House of Commons, a redrawing of the electoral map, and the possibility of holding elections for its upper house, the House of Lords.

It's time Canada leapt into the twenty-first century and addressed its democratic short comings instead of continuing to be a laggard with respect to the evolution of its system of governance.