Profit maximisation and the Green New Deal cannot mix — Richard Murphy

The simple fact is that the Green New Deal and profit maximisation are incompatible with each other, and this is of massive importance and is an issue that cannot be ducked if the Green New Deal is to work. This is the idea behind my work on what I call sustainable cost accounting (SCA).

The core idea within SCA is that existing accounts treat the supply of finance as the constraint on corporate activity and as such the return to financial capital is considered to be the focus of financial reporting, without any consideration being given to the use of that financial capital and who might benefit from it. Quite explicitly, externalities such as environmental cost are ignored in this framework, which accepts the standard neoclassical line that natural capital is a ‘free gift of nature’. This is inappropriate in a world where we face the reality of climate crisis. The capital constraint that businesses now face does not come from finance - which is readily available to most of them at almost no real cost in the case of larger companies - but from natural capital, whose use we have to limit.

Sustainable cost accounting does, then reject the reporting structure of current accounting, which is no longer fit for purpose, and in the process effectively imposes a new reporting requirement, and so corporate objective, on all companies in place of profit maximisation. This new requirement is the obligation to maintain their business on behalf of all stakeholder groups in society within the constraints that the climate crisis will impose upon them. Unless this is done the Green New Deal cannot deliver the transformation in the way in which we manage the economy that the Common Wealth think tank describe in their report. But when this is understood the ramifications are also much bigger than they appear willing to embrace.…

Tax Research UK
Profit maximisation and the Green New Deal cannot mix
Richard Murphy | Professor of Practice in International Political Economy at City University, London; Director of Tax Research UK; non-executive director of Cambridge Econometrics, and a member of the Progressive Economy Forum

Richard Murphy — It’s time for accountancy to put climate change at the core of financial reporting

Socializing negative externality doesn't eliminate the actual cost. That needs to be accounted for.

Tax Research UK

It’s time for accountancy to put climate change at the core of financial reporting

Richard Murphy

Peter Cooper — Growth is Good?

Whenever the topic of economic growth is broached, there is a common and understandable reaction along the lines that growth is ecologically unsustainable or socially harmful. Since one of the preoccupations of this blog is demand-led growth, it is perhaps worth pausing to reflect on the appropriateness of the topic. This can be broken down into two parts. Why consider growth as such? And why emphasize the possibility that growth is demand led?...

heteconomist
Growth is Good?
Peter Cooper

Noah Smith — Markets Don't Work for Everything

Finally, transaction costs. Transaction cost is on the level of economic rent. Vitally important to understanding economics, finance and business, and generally ignored.

The problems with markets mainly fall into a broad category that economists like to call “transaction costs.” That term refers to any cost people pay when they engage in arms-length market transactions. It’s not just sales taxes or swipe fees for credit cards. Market exchanges require time and effort to match a buyer with a seller, to verify that counterparties are trustworthy, to negotiate prices and to verify whether the counterparty delivered the desired results.

Economist Ronald Coase realized that this is why companies exist in the first place. Companies are like little miniature governments -- instead of negotiating a monetary payment each time you file a report or write some code or do an hour of work, your boss simply tells you to do it, and you do it. The long-term, implicit, unstated economic relationships within a company cut down on time and effort. It’s no great stretch to think that many human social institutions -- communities, governments, even groups of friends -- accomplish a similar function.

Bloomberg View
Markets Don't Work for Everything

Noah Smith, Contributor

Diane Coyle — Coase in theory and Coase in practice

Diane Coyle reviews Forever Contemporary - The Economics of Ronald Coase, edited by Cento Veljanovksi.

It starts with the Coase theorem: that when property rights are clearly assigned and there are no transactions costs (such as those involved in acquiring information, negotiating, monitoring compliance etc), then there are no externalities leading to a divergence between private and social costs: the parties involved will negotiate their way to the efficient outcome. ‘Externalities’ are symmetric, he argued: if you claim a right to clean air, you are costing me the opportunity to pollute. Who compensates whom will depend how the property rights are assigned. If you indeed have your clean air right, I will have to bargain with you to pay you for the pollution; if I have the right to produce emissions, you will have to pay me to desist.

Coase made it clear he took the existence of transaction costs very seriously, and argued that every situation had to be carefully assessed to determine the most welfare-enhancing course of action.…

Download free PDF.

The useful bibliography of Coase’s work shows how seriously he took his own conclusion that you have to look in detail at each industry, its history and specificities before pontificating; as is well known, he described anything else as ‘blackboard economics’...

Case method instead of formal theory.

The Enlightened Economist
Coase in theory and Coase in practice
Diane Coyle | freelance economist and a former advisor to the UK Treasury. She is a member of the UK Competition Commission and is acting Chairman of the BBC Trust, the governing body of the British Broadcasting Corporation

Robert Hunker — Eco Economics Takes on Neoliberalism

Ever since Milton Friedman, American economist (1912-2006), who considered himself the heir to Adam Smith, used the term neoliberalism in an essay “Neoliberalism and its Prospects” in 1951, the world has tilted in that direction, starting with Chile as the “Chicago Boys” lab experiment under the watchful eye of the infamous dictator General Augusto José Ramón Pinochet Ugarte, president from 1974-90. The world has never been the same.

Today, neoliberalism reigns supreme across the oceans, whereby control of economic principles shifts from the public sector to the private sector with limited governmental interference, the less the better, open markets, free trade for all and deregulation piled upon deregulation as well as austerity for the masses (look at Greece and Spain for major pushback movements, happening today).

With neoliberalism, the market pretty much determines everything. When looked at from another angle, the world becomes a gigantic commoditized sphere spinning around the solar system, as markets set prices for everything, except for the biosphere, a very big “except for,” indeed.

Does it make sense to set prices for everything, except for the biosphere? Since everything, from wheat to space travel, is market-driven, why not the atmosphere, why not oceans, why not soil? Why leave the biosphere out of the realm of the market?

After all, since survival of the fittest is as old as nature, and since neoliberalism, in practice, dictates ‘survival of the fittest economics’ it mirrors nature’s behavior, although, as it happens in real life, neoliberalism is bottom-feeder economics whereby the rich accumulate more and more and more at the expense of lower and lower and lower wages, less benefits, and crushed self-esteem. What could be worse?

There is a better way, a sharper focus found within eco economics, which ties the whole picture together, the externalities outside of markets as well as everything inside markets, thus, integrating important externalities into the market system, e.g., biophysical limits….

On natural capitalism.

Natural capital is defined by Sir John Richard Hicks, British economist, 1904-1989, Hicksian natural capital, bringing forth Hicksian natural income, which is the level of consumption that can be sustained from one period to another period without reducing natural wealth, which is key to successful eco economics. [Yes, that John Hicks]

Humanity's "natural capital" is the environment as a commons. Neoliberalism draws on natural capital inefficiently through externalities that distort true cost and, therefore, the vaunted price mechanism of the market, to make life poorer for all not only by privatizing gains and socializing losses but also through ecological degradation the actual cost of which is diminished quality of life. while this cost can be estimated monetarily though factors like health costs, life is priceless and cannot be valued monetarily.

The solution lies in converting from an ownership society and economy to a stewardship society and economy.

Far from preventing "the tragedy of the commons" as Garrett Harkin theorized, privatization is leading to not only a tragedy of the commons as the ecological system but also a catastrophe for humanity as its life-support system collapses.

Counterpunch
Eco Economics Takes on Neoliberalism

Robert Hunziker

Also

“Libertarians” For Ethnic Cleansing

Kevin Carson

[Walter Block] starts out by defending gentrification as a simple manifestation of autonomous market preferences, of course. The gentrifier does, he admits, drive existing residents — sometimes third or fourth-generation residents — out of their homes. They are forced to retreat to “less preferred real estate. We know this since if they liked their new domiciles more than their previous ones, they would have already moved there, without any pressure being placed on the market by the new gentry.” And the homes they’re driven from “are part of neighborhoods, communities, associations. They have a history there. Their children are wrenched away from their friends.” 

But, says Block, so what? Gentrifiers do all these awful things entirely by trying to rent or purchase real estate in a neighborhood, “thus bidding up rents and sales prices higher than would otherwise exist.” 

Is this unfair? he asks. “Certainly not. Assume that the rich came by their wealth in an honest way, not through government grants of special privileges, subsidies, bail-outs, a la crony capitalism, but via laissez faire capitalism.” Having thus assumed away the entire real world of privilege enjoyed by actually existing rich people, and the fact that local governments are nothing but showcase properties of the local real estate interests, Block goes on to argue that anything short of inequality and merciless gentrification would be grossly unfair to the rich, because they “have contributed more to everyone else than the poor.”

"Just deserts."

Bill Mitchell — Unemployment makes you sick

An interesting study published in The European Journal of Public Health recently November 2014) – Length of unemployment and health related outcomes: A life course analysis – provides fairly unambiguous evidence that the changes in labour markets under neo-liberalism towards higher entrenched unemployment rates, increased casualisation of work, the lockout of graduates and the widespread deskilling of the workforce are eroding the health outcomes of the population. While most studies of the link between unemployment and health have focused on cohorts that endure continuous long-term joblessness (unbroken spells exceeding 12 months), this study is novel because it studies whether accumulated spells of shorter-term unemployment over a person’s lifetime are detrimental to their health. The reason that is relevant is because under neo-liberalism, many individuals are forced to eke out an existence in low paid jobs interspersed with spells of unemployment. The evidence in the former case (continuous) long-term unemployment is clear – unemployment makes the person sick and they get sicker the longer they are unemployment (both physically and mentally). The new study shows that long-term unemployment generated over a person’s life through a series of accumulated spells of shorter-term unemployment also is bad for public health and well-being. It means that the emphasis on austerity which causes cyclical effects to be worse (entrenched mass unemployment) is bad but also the main structural bias in growth periods towards casualised, precarious work is also bad for our health.

The authors are Urban Janlert from Umeå University, Anthony H. Winefield from University of South Australia, Anne Hammarström from University of Adelaide. 

This is a study in the field of “Life-course epidemiology”, which according the authors “has emerged within the research on the development of social inequalities in health”.…

A consequence of  pursuing efficiency at the micro level of the firm results in social dysfunction and individual impairment as externalities inherent in the neoliberal model of capitalism.

Bill Mitchell – billy blog

Unemployment makes you sick

Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

Mahmoud Mohieldin — Measuring Inclusive Growth

One method of measurement is “natural capital accounting,” which assesses the value of natural resources in development planning and national accounts, just as a family would account for their home’s value – and the cost of maintaining it – when deciding how much of their regular income to consume. A recent World Economic Forum report proposes a “dashboard” for inclusive and sustainable growth. This model brings together natural capital accounting, a human-opportunity index, a gender-gap index, measures of public investment as a percentage of GDP, a competitiveness index, indicators of shared prosperity, and disaggregated unemployment data.

Project Syndicate
Measuring Inclusive Growth
Mahmoud Mohieldin | Corporate Secretary and the President’s special envoy at the World Bank

Cameron Murray — Unique economics of healthcare

I would add another point, which is only mentioned obliquely as positive externality. Health care is a public good because a healthy society benefits everyone and an unhealthy society adversely affects everyone. This extends beyond the obvious positive externality of a more hygienic and safe environment in which everyone is subjected to less invasive disease. Productivity is also higher in a healthy society than an unhealthy one, providing a direct economic reason to promote a healthy society as a public good. This list can be multiplied. It's a no-brainer.

Fresh Economic Thinking
Unique economics of healthcare
Cameron Murray

K. A. Hamid and A. Duraiappah — The GDP-Wellbeing Gap

The link between economic growth and human wellbeing seems obvious. Indeed, as measured by gross domestic product, economic growth is widely viewed as the ultimate development objective. But it is time to rethink this approach. 

In fact, there is a rising disconnect between countries’ per capita GDP and their citizens’ wellbeing, as rapid output growth exacerbates health challenges and erodes environmental conditions. Given this, people increasingly value non-material wealth just as highly as monetary wealth, if not more.

But persuading policymakers and politicians of GDP’s limitations is no easy feat. After all, it is far simpler to defend a well-understood, long-accepted framework than it is to champion a new worldview.

Again, quantity versus quality.

Project Syndicate
The GDP-Wellbeing Gap
Zakri Abdul Hamid, a member of the UN Secretary-General’s Scientific Advisory Board, Science Adviser to the Prime Minister of Malaysia, and co-chair of MIGHT, and Anantha Duraiappah, Executive Director of the International Human Dimensions Program on Global Environmental Change, hosted by UN University in Bonn

Michael Ricciardi — Swedish Engineers Invent ‘Nano Gas’ That ‘Instantly Neutralizes’ Carbon Pollution (via Planetsave)

Swedish Engineers Invent ‘Nano Gas’ That ‘Instantly Neutralizes’ Carbon Pollution (via Planetsave)

The old saying “fighting fire with fire” may be true or not depending upon the situation, but if someone told you the best way to fight (carbon-based) gas is with another gas, you might raise a skeptical eyebrow or two. But that’s exactly what…

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A Brief History of How We Lost the Commons – And what we must do to get it back

Enclosure, in which property rights are literally taken or given away by government, is half the reason our commons is in such a steep decline today; the other half is a form of trespass called externalizing—that is, corporations shifting their costs onto the commons. Externalizing is as damaging as enclosure, yet much less noticed, since it occurs quietly and continuously, as in the case of pollution seeping into a river.

The one-two punch of enclosure and externalizing is especially destructive. With one hand, corporations take valuable stuff from the commons and privatize it. With the other hand, they dump bad stuff into the commons and pay nothing. The result is profits for corporations but a steady loss for everyone else, to whom the commons belong.

On The Commons
A Brief History of How We Lost the Commons: And what we must do to get it back
Peter Barnes