Friday, September 24, 2010

Proposition: Only Capitalism can save the Planet

Recently the St James Ethics Centre in Australia hosted an event named, Only Capitalism can save the Planet, where the full debate can be viewed.  Their old style Oxford style debates are an interesting exercise.

I first provide commentary on Steven Keens, who I believe provided the most articulate defense against the proposition.  He is Associate Professor of Economics & Finance at the University of Western Sydney, and author of the popular book Debunking Economics.  He has also done very interesting work on debt for which he is famous.  He describes himself as an 'anti-economist' and perhaps because of this perspective, has less emotional investment in the Left's narrative.

His speech is isolated and accessible on his website:  Steve Keen's Debtwatch Podcast with Stuart Cameron.

Mr. Keen begins with the assertion that capitalism is defined by ingenuity, allocation of resources, stability and an ingenious price system.  But capitalism also involves poverty, inequality, and instability.

The issue is that people wake up and spoil the dream of capitalism when they act.  The dream becomes a nightmare.  Keen stipulates that the current world economy is the product of the neoclassical view that markets are efficient and can foresee the future and produce a 'good' result.  The financial crisis is an example that this is not true.  It is a nightmare.  He makes the following points:
  • Capitalism is unequalled at innovation and joining the purchaser and producer of that innovation.  Socialism can not do that.  The Soviet economy is simple proof of that.
  • Socialism is the paranoid schizophrenic of political systems.  Stalin is the example of paranoid, and while socialism promises freedom for workers, it ends up producing a kind of slavery, which is schizophrenic.
  • Capitalism is manic depressive.  It is euphoric and then crashes in booms and busts.
  • Neither system should be able to self-medicate. 
  • As an example, the financial system ends up causing economic collapse every 20 years or so.  When we put in regulation that prevents it from doing so, the economy booms.  The problem is that in our euphoria, we abolish the regulation again.  It is a classic manic response.
  • Unlike the 1950s, when engineers ran companies and produced goods, much of our capitalism now is comprised of producing paper and AAA securities which we pawn across the world hoping it does not blow up. 
  • We are not living in traditional capitalism now.  We are living in Ponzi capitalism.  The engineers are no longer in charge.  And they are the ones we need to solve the major problems of the world.
Having set the stage, Keen makes the following conclusions:
  1. Capitalism is great at innovation, but it is not good at addressing societal ills such as global warming because there is no one to pay for it.  
  2. It is not good at reacting to feedback effects.  Capitalism does not read the road signs well.  It does not reverse course.  It carries on until it crashes.  
  3. To solve the issues of the planet, we must digress and shrink.  Capitalism can not do that.  So any solution will involve compulsion, which people hate.  Keen very seriously means not socialism, but direct decrees along the order of a benign dictatorship (To be fair, he hates the idea also, but sees no other way to avert disaster since democracy will not move quickly enough, and the planet is close to meltdown.
  4. Capitalism must turn and we don't know how it will do so.  It faces three crises:
  • Huge debt driven by bankers and now preserved by the government.
  • Peak oil.
  • Global warming.
      In summary, feedback is the Achilles heel of capitalism.  It does not acknowledge long run feedback until it is too late.   We can solve these issues, but we should have started in 1975, debating how to re-arrange and adjust prices (I presume he means by reflecting negative externalities).  It may be that it is too late for capitalism to save the planet, and we must take more drastic action.  That will likely be a militaristic, command and control answer, which most people do not like.

      Other AGAINST arguments:
      • Capitalism is endlessly creative and innovative.  You can buy a Coke anywhere in the world.  When Katrina invaded New Orleans, the government was not first on the scene; Wal-mart was.  But it lacks any pricing mechanism for taking care of the planet.
      • Ergo, it is China that produces the most electric cars, solar panels, and wind.  It does so because it is a communist system that can dictate solutions.
      • Capitalism must be subject to our society's needs so that it serves us instead of us serving it and before it destroys the planet.
      • How can anyone in their right mind say capitalism will save the planet when we are surrounded by its cock-ups; financial crisis, oil spill, etc.  Destruction everywhere.  None of it creative.
      • Competition and innovation is infamous for messes, and government acts like a shovel running after an elephant.
      • Capitalism is the best alternative? That is not saying much. Obama is hampered by the party of 'no.'
      • Government can work. But cpaitalism is like a child. Acid rain is a good example.
      • Why are we killing the planet? short run thinking. Republicans think we will live in air-conditioned castles far from the shore line.
      • Climate change must be halted.  We have to do with less.  People unite. Protest. Live more humbly.
      • We are so closed minded.   The Internet is the biggest backyard fence in the world, allowing close minded opinions.
      • Everything said tonight is a crock. Capitalism is brutal and couldn't care less. It is up to the people to get on its case. The Left needs to come up with a better system.
      • The solution to population growth is economic growth because prosperity leads to education and less children. But economic growth is destroying the planet. Therefore more economic growth will eventually collapse the system and destroy the planet. Therefore we must devolve and share. We must consume less. Unfortunately we will in all likelihood be forced to adopt less democratic forms to get this done, because left alone, western societies will continue to self-destruct.

      The FOR argument:
      • We all want to save the planet, but:
      • West Point, Liberia. 85% unemployment, no power grid or sewage system, and about 50% of the population never reaches 40. There is no debate in West Point about the future of capitalism. They have the same mental capabilities but are preoccupied with staying alive.
      • Sze Ping, China. The world's most polluted city. Home of the world's largest chloride factory.  People died due to illness and crops would not grow. Farmers sued. Each received $17 US.
      • There is no debate on who will save the planet. Neither is there likely to be one. China still jails journalists. It is either us, or no one.
      • The expansion of human activity is doing damage to the planet. Therefore there must be natural limits to economic expansion since the planet does not expand. We also have problems with water, fish stocks, soil, and the destruction of species.
      • But alternatives such as command and control have all failed.
      • The choice is not between central planning and totally free markets. The answer is always somewhere in the middle. Regulating markets is very difficult. Externalities abound.
      • Does capitalism have the motivation to save the planet? No. But like Keynes, who saved capitalism from the capitalists, we must save capitalism now as well, even kicking and screaming.
      • But totally free markets do not exist. Never have. Never will.  Financial collapse shows that regulation was drawn too far on the side of free markets.  Markets are far from perfect, particularly where the environment is concerned. Since many of those resources do not have a price, they are over used. Governments must find a way to put a price on those resources.
      • 66 - 80% of the the world's net worth lies in capitalist countries that are democracies. We do not know why these two things are connected but they are.
      • But we must harness this power.  We need the freedom for the citizens to speak their mind. Wealth and power lies in these countries. So does the freedom.  The people must demand change and solutions for the planet since politicians only follow. Of course saving the planet will cost a great deal of money. But we have the luxury of thought and wealth.
        • Capitalism is flawed but it is all we have.  Mixed economies like Europe might be the answer.
        • Consumption is killing us, eating up all resources.
        • Elephant in the room is population growth.  Can capitalism or socialism, or mixed economy solve the population problem?
        • Capitalist finance ruined us.
        • Cuba has better health care than the US.
        • Business men say growth is good.  But we need to learn to survive sustainably.  Benign dictatorship is the answer.
        • The assumption is that we will run out of resources due to capitalism.  LIke a forest fire, old trees die and new trees spring up.  Is that not the idea of capitalism?  Creative destruction.
        • Western civilization must devolve to a steady state ecnomy.  Since the system can not stop growing, we might be doomed.
        • Is China using capitalism?  It is using private markets and trade to advance.
        Before debate:  Yea: 31   Against:  41 Undecided: 28
        After debate: Yea: 47  Against: 41  Undecided: 11

        First, I was surprised at the voting results given what I considered a very weak argument supporting the proposition.

        As a proponent of free markets, I struggle to see the difference between the two arguments.  It appears to be one of degree; the FOR position is that we must reign capitalism in before its consumptive ways destroy us.  The AGAINST position is that it is too late for that, and we must take more drastic, less democratic measures.

        There are common themes on both sides, both very prevalent in Europe:
        1. The economy is a limited system and we can outstrip it, destroying the planet in the process, and robbing others of their share.  In my many discussions with Europeans, both academic and on the street, this is their prevailing thought; they are over-populated and can not do much about it.  This argument in a nutshell is the position of progressives and explains their quest for world government, devolution, and western guilt.
        2. Another theme is that our economy can and should be tightly controlled because left untouched, business grows ever more destructive.  Besides the desolation and crippled populations of the world, now our planet is crying out to us to stop.  Capitalism is ruining everything.

        It is difficult to respond to such misguided assumptions.  The economy is a complex system.  It can not be controlled without serious and negative externality since doing so limits the creative destruction so elemental to risk and innovation.  It is the regulation itself, beyond government's role as arbiter and the rule of law, that has caused most of the damage of free markets.

        As an example, history tells us that left alone, the banking industry would hold 5-10 times as much capital as they do now, and by necessity would be much more conservative.

        As a complex system, the economy will always adapt to changing environments popularly called booms and busts.  No complex system is inherently 'stable' forever.  Its strength is in its ability to adapt unless constricted from doing so.

        Further, there is no evidence that the economy or our consumption of 'natural resources' is a limited or zero sum game.  Most of our GDP was not even imagined 100 years ago.  Most estimates of world population involve a peak at 2060 with a long slow decline in years after.

        Whatever the future, our past teaches us that innovation will take us in cleaner, more efficient, less constricting and surprising paths.  Since we were riding horses a hundred years ago, there is little reason to believe our society will look much like it does now in another hundred years.  Unless that is, we suppress or destroy all innovation with command and control hierarchies.

        The secret of adaptation in a complex system is for its members to hold enough reserve to successfully move from one environment to the next.  Stability and control is a pipe dream.  Negating risk and the pain of failure or of misguided investment in the economy is impossible.  There lies the road to ruin and bureaucratic over-reach and bankruptcy.

        No one would consider feeding an ant colony as a successful end state when it runs out of food, as opposed to allowing them to search and find another source on their own.  This is the inherent issue with government over-reach and stimulus and negation of the result of failure.  It artificially props up the status quo even while it utilizes scarce resources to do so.  Agents in the market continually mis-allocate resources in their quest for fruitful innovation.  Markets can scarcely afford governments doing so to perpetuate failed states.

        As to global warming, history also tells us that no bureaucracy can spell the successful solution to a problem of this magnitude.  More control of a complex system in dire circumstances is not the answer; it would only bring failure more quickly.  The trillions in 'medication' or solution proposed by our would-be saviors are evidence of that; it would be better to grow as quickly as possible so that in a hundred years the adaptation would be less expensive and innovation would increase our chances.

        Assuming climate change is inevitable, the last thing we should do is adopt more autocratic rule.  It would destroy our societies, and spell the end of all of us.  As a complex system, the best thing we could do is rely on self-autonomy.  That has always been the answer to successful prosperity, evolution and innovation.  There is no reason to believe our path lies in any other alternative.

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