This is the second of three posts looking at the party’s messaging. The first was published here yesterday; the last and final post will appear tomorrow.
The first half of our message emphasises economic competence: bringing back (as David Laws once put it) Gladstonian Liberalism to the Treasury and setting us up to be competitive in a fast-changing, globalised economy.
So far, much of the focus has been on our willingness to take “tough decisions”. Here, for example, is David Laws speaking to the Independent recently: “in the past people have known we stood for a fairer society but have wondered whether we could take some of the tough decisions on the economy. After this parliament, they will not be in any doubt…”
I think David is absolutely right, and I agree in broad terms with the coalition’s economic strategy. What I think we have to do, though, is put our decisions on the economy into some context.
Over the decade and a half before we entered government, growth in the British economy was to a large extent fuelled by debt, both personal and public. In the face of an economy that was at a stage in its development where maintaining previous levels of growth would be more difficult, we borrowed our way to the sort of economic growth and increases in living standards that we thought we deserved, and to which we had become accustomed.
The financial crisis – in large part a consequence of such policies (though not just in the UK) – brought that abruptly to an end. That is why the correct response to the crisis is not to go back to another debt-fuelled bubble, as Labour argue, but to face up to the economic reality as we should have done a decade earlier. By delaying that reckoning it becomes more painful – it’s always more difficult to cut back than to not spend in the first place – but it is made all the more necessary, too.
Only in an economy where the level and drivers of growth are sustainable can we create long-term prosperity that can bring the sort of opportunities we want to see. And only by reversing the policies of Labour’s time in government – by stopping our addiction to borrowing-fuelled consumption – can we begin to do realise that sort of sustainable growth.
But there has to be more to it than bringing down the deficit. The inherent nature of capitalism means much of the adaptation necessary for us to continue to remain competitive will happen automatically. But that is not to say government has no role to play.
For example, one of the key things the Lib Dems should be banging our drum about is trade. One would almost be forgiven for thinking that the argument for free trade had been won, and that there is nothing more to do. Far from it. And who better to make the economic argument than us?
Reviving the Doha round of trade talks will be difficult, but it doesn’t mean we shouldn’t try. More feasible is a transatlantic trade deal between the US and EU, with signs the Obama administration is warming to the idea (£). More trade means more sustainable jobs and increased prosperity. Estimates vary but there can be no doubt that such trade deals can add several percentage points to national income and lead to the creation of tens of thousands of jobs.
We shouldn’t pretend that these sorts of deals are easy, and we would have to sacrifice some things that we may not wish to in the process of reaching compromise, but the arguments for free trade made by our forebears are just as sound in the 21st century as they were in the 19th.
Sustainable prosperity through fiscal discipline and distinctively liberal principles like free trade can be a winning message, and if we remember and communicate the economic context as well as our inheritance we needn’t define our approach to the economy merely with reference to Labour’s economic incompetence.
Tomorrow, I will turn to the other side of the coin: social justice.
* Nick Thornsby is a day editor at Lib Dem Voice.
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64 Comments
609 words yesterday, 654 words today, more words tomorrow. Wouldn’t it be good if the rest of us oiks could write at the same length, instead of having to cope with the 500-words (and no split articles) guideline?
David,
Our word length guidelines are just that: guidelines. When submissions come in that exceed those guidelines, we as editors take a view as to whether we wish to run the piece as is or whether we think it should fit within the recommended length. The vast majority of my posts on LDV fall within our guideline limits, as do most outside contributions.
As to your point about split posts, there are plenty of examples of outside contributors doing such posts.
“agree in broad terms with the coalition’s economic strategy. ”
The Coalition’s economic strategy is failing. So you can hardly claim you can be trusted with the economy. Even if it succeeds, the credit will go to the Tories. And your message encourages people to do so as you are only claiming to be better on the economy than Labour so implicitly you are saying that the Tories are better on the economy than the Lib Dems.
Are you saying that the Tories and Labour are against Free Trade?
Nick, your thinking on economic policy is exactly why we shouldn’t major our message on economic competence.
Whilst the private sector (including households) are deleveraging and saving, you cannot bring down the deficit. The last two and half years should have convinced those wedded to Austrian economics of that fallacy. All you do is reduce the size of nominal income and produce stagnation or decline.
Fixation on reducing the deficit was always more about blaming Labour than it was about competent economic policy.
Policy in 2010 required continued monetary easing to maintain the by then re-established long term trend in annual aggregate demand growth of 5%. All the talk of austerity convinced firms and households that they were right to continue deleveraging. And the Bank of England’s passive tightening of monetary policy killed off the recovery in aggregate demand that may have made them thing again.
Now, you are in a special position where you can ask David Laws whether, if he had the chance to go back to 2010 in May, he would trust the Bank of England to get monetary policy right AND whether today he has confidence in the Governor of the Bank of England.
In private he will say no, and NO.
The inherent nature of capitalism means much of the adaptation necessary for us to continue to remain competitive will happen automatically????
Race to the bottom- wise? Neoliberal capitalism has, over the last 35 years or so concentrated pretty much all the economic growth in the hands of the less than 1% elite that control it. The only way the rest of us could keep the economy going was, yes, by borrowing – but borrowing can only last so long. Once that comes to an end, there’s no fuel to keep the economy going, because all the wealth is concentrated. There are only so many private jets the elite can buy. So this automatic competitiveness? Does it come from having a large “reserve army of the unemployed “(tm Karl Marx)? Or by wages and salaries reducing to globally competitive levels? Ofc not for the elite. And how do we get growth in the UK if incomes are slashed like that? I notice that we’re having a new “enclosure movement” whereby the elites are enclosing public spaces, public services (schools, health, police, prisons,, presumably soon the armed services) is that where growth is expected to come from? But not for the 99%.
Nick,
Below is a submission from me which you ran. It attempted to present a potted history of Liberalism over the last 50 years, and a summary of the two main competing liberal philosophies, in order to draw conclusions as to how we should move forward. So, not easy to keep brief, then!
I offered it in three alternative versions. You could have used it as a single article of nearly 1000 words. You could have used it split into two shorter articles. Or you could have accepted only my third alternative, in which the conclusions were left out. You went for alternative 3. When it was posted, I let debate run for a while, and then belatedly added the “conclusions” as a comment.
I don’t think it made it easier for readers to follow my argument to have it broken up in that way. But I did provoke plenty of enthusiastic debate. So, whether or not you agree my point of view, I think I deliver value for LDV!
https://www.libdemvoice.org/opinion-54-32411.html
I think we should be more vocal on free trade, but we also need to do more to make it a “winning message”. Talking about the EU-US negotiations and Doha isn’t going to win people over on the doorstep. We need to ask people why they shouldn’t be able to access the cheapest goods from around the world, without paying antiquated import tariffs; and why other countries should similarly be able to discriminate against British goods and services. Maybe others can suggest some tips from the 19th century! And we should bang on about EU agricultural subsidies, not just for the sake of free trade – helping the world’s poorest too – but to show we’re pro EU reform as well as pro EU. However, this is of course also an opportunity to stress the importance of the EU to free trade – both through the internal market and as a much more potent force in international negotiations.
The problem with part 1 was that Nick Thornsby made unstated assumptions. We were expected to accept the need for ‘competence’ without Nick explaining what we were being competent in aid of. He assumed that his values went without saying.
Here in part 2, Nick has come out of the closet and made it clear he believes in the failed economic orthodoxy of the past thirty years. The logical error now is that he expects us to accept this orthodoxy without question.
Why, for example, does “bringing back Gladstonian Liberalism to the Treasury” equate to “economic competence”? For a start, it is doubtful that the failed economic orthodoxy Nick Thornsby advocates would be recognised by Gladstone. In any case, we are not told why this version of liberalism is preferable to any other. It is just a bald assertion.
Likewise, why does Nick Thornsby “agree in broad terms with the coalition’s economic strategy”? He never tells us, even though it is obvious that, with a triple-dip recession looming, this strategy has failed. He simply asks us to accept without question the policy of blind persistence as the only realistic option.
Parts 1 and 2 aren’t really about messaging. They are just a clumsy attempt to smuggle in a doctrinaire position on economics under the guise of a spurious technocratic claim to ‘competence’. It is the politics of ‘TINA’ (‘There Is No Alternative’), which asserts that one viewpoint is the only game in town. The idea that it is a “winning message” is laughable.
I would not try to emphasis the economy to a pensioner. Quantative Easing has resulted in low savings interest rates and a decline in the value of annuities.
Nick Thornsby is right to say that we should have an economic policy that is not built on increasing consumer debt. This approach is consistent with a growth agenda that is not dependent on demand. Free trade is one important answer, and the Lib Dem Campaign for Manufacturing working for greater manufacturing capacity in the UK is another.
The party’s message needs to be short, because so many voters are like me, we have short attention spans! I reckon this article could have been written in about 200 words. For instance, only the first sentence is needed in paragraph 2.
I agree with William Hobhouse. Rising debt before the financial crisis meant that industry planned for a demand that could not be sustained. The crisis occurred because debt reached un-repayable levels – sub-prime, Greece, etc. Our task since then has been to find and adjust to a level of sustainable demand. Whether we have done that job well or not is difficult to assess, since we don’t know what would have happened if.
We don’t have a recent record of economic competence to point to Nick, but the opposite: https://www.libdemvoice.org/opinion-its-the-economy-stupid-32912.html#comments.
As Simon Titley above alludes, you are making assertions that you want to be true , but are not true. I don’t see how we can go along with your further analysis, when your starting premise is faulty.
What Jenny Barnes said.
What we have seen is a huge run up of private sector debt that, as long as it was accumulating, ADDED to spending power in the economy. When the bubble burst and people started paying debt down we got a corresponding SUBTRACTION of spending power. If the government adopts austerity policies then the depression is compounded. I know of NO example worldwide where austerity has worked as a policy response in such circumstances.
The financial problem is that there is still far too much outstanding private sector debt. This is what must be tackled but is precisely what the govt is failing to do. If I remember rightly, the Conservatives get well over half their funding from the City. He who pays the piper …
“Only by reversing the policies of Labour’s time in government – by stopping our addiction to borrowing-fuelled consumption – can we … realise .. sustainable growth”
Only by getting away from the knee-jerk exercise of slagging off Labour at every turn can we ever hope to think rationally and solve our problems. The bubble was presided over by that well known Labourite George W Bush and enthusiastically supported by almost everyone, apart from some rumbles of disquiet from Cable. It’s not that Labour were blameless, far from it, but that doesn’t mean we can simply bask in the delight of scapegoating them for everything.
“if we remember and communicate the economic context as well as our inheritance we needn’t define our approach to the economy merely with reference to Labour’s economic incompetence”
This just sounds weak. A few nods to free trade don’t alter the fact that we seem to have only one big claim to popularity these days. That is to repeat ad nauseam that however dreadful we are, Labour are worse. Ever wonder why people are pig-sick of all politicians, and especially pig-sick of the Lib Dems?
Sorry Nick, I think that this is a poor attempt to justify the thoughts of D.L. without any attempt to examine how our principles fit into the continuum of post 2nd World War Liberal Democrat thinking (principles and policies -remember them?). May I suggest that you read “Them and Us” by Will Hutton for a different perspective………….
William, how is growth not dependent on demand. Consumers paying off debt and others saving. Businesses sitting on cash and not investing. Export markets similarly subdued. Government trying to reduce the deficit. Bank of England setting aggregate demand at +3% a year. That is a receipt for 0 to .5% growth in real GDP. Which is what we have had since 2009. Expecting that to continue Prudent businesses and prudent citizens shun risk. Impass. Stagnation.
@jenny barnes “Neoliberal capitalism has, over the last 35 years or so concentrated pretty much all the economic growth in the hands of the less than 1% elite that control it.”
Back in the real world there has been a large rise in living standards of virtually everyone in the developed world and a gigantic improvement in living standards in countries like China and India where hundreds of millions of people have been lifted out of poverty. All die to the miracle of free trade and market economics.
@Simon McGrath – So now you’re saying that communist China (or rather, state capitalist China) should be our role model?
@Bill le Breton
What is savings if not a promise of future demand?
Far better individuals and businesses spend money they have on what they want and need, than bet money that they don’t have on what they think people might want but probably don’t.
A renewed, more vocal and more consistent, emphasis on free trade (which is not only about removing tariff barriers as such but also openness to foreign investment) would indeed be welcome. It might not be all that distinctive in that Labour and the Tories both profess a belief in free trade, but it does fit particularly well with all strands of the liberal tradition.
I would also link this up with a positive message about globalisation and immigration, in an approach which seeks to address economic insecurities not by pulling up the drawbridge but by helping individuals and communities to adapt to change.
More broadly a much more credible pro-growth agenda is needed. Just hoping to reflate the asset bubble through ultra-loose monetary policy or to boost demand for a couple of quarters through even larger fiscal deficits than the ones we’ve been running since 2008 will at best shift the problem slightly further down the road; it offers little prospect of a self-sustaining recovery once the fiscal and monetary ‘steroids’ are withdrawn.
An alternative, and I think more promising, approach to either the coalition’s micro-tinkering or the punk Keynesianism being advocated by Labour is a bold structural reform agenda that would address both the demand side and supply-side capacity (the economy’s productive potential, sometimes misleadingly referred to as ‘competitiveness’).
This would involve bolder deregulation of the planning system to reduce development land prices and address the chronic shortage of housing; simplifying and rationalising the tax system, including sweeping away a whole raft of distorting tax reliefs and complex tax legislation; a more liberal immigration policy alongside reforms to the criteria for access to the welfare system; a more coherent transport policy that does not start from the premise that we should be switching from one mode to another (ie planes to trains) but gets on with equipping the British economy properly with high-speed rail AND additional airport capacity; relaxing the pro-cyclical insistence that banks continue to build up their capital buffers at the expense of supplying credit to the real economy, but also reforming the banking system more fundamentally than Vickers in order to tackle the underlying moral hazard of ‘too big to fail’.
Allowing the automatic fiscal stabilisers to operate to support demand in the present circumstances is one thing (which I agree with, and which the government is doing and plans to continue doing). I’m certainly not arguing for a policy of liquidation as the solution to our present woes: and whatever the rhetoric may sometimes imply, nor is the government. (Indeed this is an extraordinary way to characterise its willingness to run year-on-year deficits of a size that would have made Lord Keynes blush!). Clearly the required deleveraging of the economy cannot be accomplished overnight, and the fiscal deficit is partly a consequence of the pace of private sector retrenchment. On the other hand, the very size of the deficit and debt stock is itself a deterrent to private sector recovery, holding back corporate investment, so there is no easy answer here.
In any case a serious pro-growth agenda for the next decade surely cannot presuppose an almost endless continuation of fiscal and monetary stimuli. Trade liberalisation, the replacement of a state-cosseted banking system with a competitive one, the encouragement of entrepreneurship and wider capital ownership, serious reform of the housing market, tax reform along the lines of the Mirrlees review, an ‘all of the above’ approach to energy and transport policy: these must be some of the building blocks.
“In any case a serious pro-growth agenda for the next decade surely cannot presuppose an almost endless continuation of fiscal and monetary stimuli. Trade liberalisation, the replacement of a state-cosseted banking system with a competitive one, the encouragement of entrepreneurship and wider capital ownership, serious reform of the housing market, tax reform along the lines of the Mirrlees review, an ‘all of the above’ approach to energy and transport policy: these must be some of the building blocks.”
Well why isn’t Vince Cable more vocal about all this then? . He seems to be repeating the same old things without actually delivering anything.
Alex, your second to last para is an excellent review of the situation except it is silent on monetary policy, wich is also the challenge I set Nick. The central bank sets the level of money demand in the economy. It is trying to pursue the forecast for inflation in the medium term which it defines as 2 years. As a consequence it has delivered growth in money demand of 3% since it woke up to the crisis and finally got its rate down to near zero. It has delivered growth in money demand of 2.5% since the coalition’s 2010 emergency budget.
That is the lid on recovery.
Andrew’s view that saving is future demand does not help the unemployed and the underemployed and the rusting businesses of today and blight today and provides a lower legacy to the future. It is pure Austrian school economics . From the position we were in the ‘savings’ were in the form of deleveraging which destroys money. It is the job of the central bank to counter this and stabilize money demand back at its long term trend growth of 5%.
M*V equals P*Y. Do the maths as they say. M destroyed at greater rate than being created . V falls as people demand to hold more cash. Prices sticky. Y (national product , aggregate demand, NGDP – call it what you will ) falls.
I think Nick will find that David Laws is beginning to see the negligence of the Bank and especially of its Governor.
Inaction will give us endless stagnation. Which to me is illiberal in its effects on life chances , social cohesion and the environment.
@ Alex
I agree entirely!
Back in the real world there has been a large rise in living standards of virtually everyone in the developed world
Paid for with borrowing, like I said. Incomes in the developed world have been largely flat.
Free trade. The justification for, and the reason why people think there is growth to be had from freer trade is the law of comparative trade advantage. Free trade between two economies with different comparative costs benefits both economies. However, what people often don’t dig into, is exactly which groups of people in these economies benefit.
The gains of freer trade accrue to the production factor in each economy that is in comparative abundance; in the developed world that is skilled workers, and in the developing world it is unskilled. Meanwhile, the other factor: in the developed world unskilled workers and in the developing world skilled, loses out. We’ve seen this in our economy with the lack of unskilled jobs and the inevitable parking of low-skill people on either very low pay jobs or on benefits. It’s a bit rich to then blame these people for a policy that has enriched skilled workers, criticise them for not finding jobs, suggest they would spend any increase in benefit on drugs, and reduce their benefits.
Quite often “free trade” agreements have been used to disadvantage unskilled or low skilled workers. The experience of Mexicans after the NAFTA agreement is interesting.
What killed growth?
http://www.cityam.com/forum/economic-perfect-storm-the-four-trends-killed-western-growth
“What began in 2008 was the denouement of a broad-based process that lasted for 30 years.”…
“The compounding mistake was a belief that globalisation would make everyone richer. ”
And crucially, we are approaching peak fossil fuel. Without that energy , either from fossil or other sources, growth – indeed, a modern economy – is going to be impossible.
If you think the Coalition is happy with its economic policy and not just looking for a way of extracating itself without loss of face you might do well to read Allegra Station on ‘hot potato economics’ here. http://m.bbc.co.uk/news/uk-politics-21161962
We should have been the first to embrace this policy as it is fundamentally Liberal. As it is, we cd be the last if Allegra is right that Labour are moving this way.
If you read the piece you might believe that only Jeremy Paxman is preventing a UK economic recovery. Where is our bravery at a time of national emergency. Where is our Lloyd George?
jenny barnes says:
“And crucially, we are approaching peak fossil fuel. Without that energy , either from fossil or other sources, growth – indeed, a modern economy – is going to be impossible.”
Jenny is right on this, and understanding its importance is crucial. Very few economists understand energy, or how vital it is in the engine of a modern economy. It is no co-incidence that the global economy stalled around the same time that crude oil hit $147 per barrel. (And now drifts in the triple digit range at $110 per barrel, continuously choking any further growth prospects ).
Jenny is on the nail here with this simple message. Growth is impossible without cheap energy. And cheap energy has gone. Austrians and Keynesians, are arguing for growth, in the same way that Vladimir and Estragon wait for Godot.
The only solution is working towards a steady state economy.
http://steadystate.org/
Bill, surely policy been on an emergency footing since 2008! In normal times governments – and the markets in which they borrow such huge sums to keep themselves afloat – would hardly be running these cavernous deficits and the central bank would not be undertaking large-scale QE.
The question, as ever, is whether the emergency action – unprecedented though it has been – is still insufficient for the task… Or whether in fact it is no longer helping to fix (or even manage) the problem and is in fact leading to a self-perpetuating dependence on the fiscal and monetary steroids, prolonging the exit phase from the crisis as the economy slips back into recession every time the dose is lessened… In which case something more imaginative and fundamental than manipulating demand stimuli is required.
Regarding monetary policy, I do think it’s worth considering a switch in the Bank’s remit to a nominal GDP target, which might have approvided earlier warning signals and limited the severity of the crash had it been in place back then.
However, simply switching the target or policy framework doesn’t magically make a higher level of real GDP achievable – if nominal GDP growth of 6pc per year consists of 5pc inflation and 1pc real growth, that isn’t really progress! We need to have a better indication of the productivity hit from he financial crisis before we know what the ‘new normal’ is likely to be in terms of trend GDP growth.
In any case, whatever its formal remit you can hardly claim the Bank has been slavishly sticking to its 2pc inflation target for the past 4 years! Inflation has been persistently above target, despite the all the warnings about imminent deflation. In reality the MPC has set policy with at least one eye on the broader macroeconomic environment.
I see advantages in formalising this by moving to a nominal GDP target, but mainly as a stabilisation tool and early-warning sign against future collapses in demand. I don’t see how pursuing deliberately higher inflation now, as some advocate, would be helpful – since higher than anticipated inflation has itself been one of the biggest factors sapping demand over the past few years, biting into real household incomes and spending power. (In fact this has almost certainly had a bigger impact than the fiscal squeeze, which so far has mainly hit consumer spending through tax rises.)
Alex, some thoughts. First, the Bank Targets the forecast, not present CPI. Do you accept that. MPC minutes show that each month they have been able to achieve that target, often actually below 2%. So no judging. What they have delivered sine the emergency budget is sub 2% on the forecast, around 3% ngdp growth and almost 0 rgdp .
Obviously low nominal rates do not necessarily indicate loose policy in itself. Friedman said that the lessons from 30s and 70s was that low ngdp ance low rates indicate that policy has been too tight ance high ngdp and high rates that it has been too loose. He’d be telling us today, still too tight, keep going as per US and now Japan.
Ngdp level target plus communications campaign announcing CB will do everything to get to target will bring us to target very quickly.
So you ask wd I swap 1% real growth and 4% CPI for present 0 growth and 2.5 CPI. Yes I would. Especially as this wd give confidence to business that the market would be 5% again in period 2. As they geared up for that the ratio of real growth to inflation would improve. Giving 2% real and 3% CPI.
Do this today and we wd get to long term pre crisis trend by spring 2015.
This is not unrealistic stuff. This is now being seriously considered by all three parties. And although the author is quiet on this the Leadership is weighing it up. As I understand it the only delay is timidity about how you explain the process and how you explain why it wasn’t done before.
We shall see.
Well clearly monetary policy needs some anchor or remit, although the lesson from the 1980s was that over-reliance on a single lodestar could be misleading and lead to inappropriately tight or loose policy (Goodhart’s Law and all that). The proponents of ‘rules’ rather than discretion (ie judgement) in macroeconomic policy somehow always claim things went wrong because the policy maker targeted the wrong rule: whether M3, M0, the exchange rate, the deficit, NGDP or whatever…
I suspect that in reality policy-makers are condemned to having to drive the car with a throttle, a brake pedal, a gear change and an eye on the road signs, not merely to put it into cruise control and assure everyone that all will be right! They need to keep their eyes on a wide range of indicators and not become transfixed by a single target.
Through the 1990s and 2000s inflation targeting was in vogue, and it was assumed the debates about finding the right anchor for monetary policy were of academic interest. Now it is a live issue again: I agree with you about that.
So there is a healthy debate going on about devising a more credible and suitable framework for monetary policy that will a) take movements in asset prices and credit into account (unlike CPI inflation) and b) thereby try to promote wider financial stability and reduce the economic shocks that result from periodic corrections.
Nominal GDP targeting could assist in this as a higher-order goal for policy, although it won’t eliminate the need to look for intermediate signals so as to adjust policy in time. There are significant practical difficulties with setting short-term policy (ie monthly interest rate decisions) solely on the basis of nominal GDP: the fact that government spending accounts for nearly half of GDP and that imports are a negative item in the GDP accounts means that NGDP targets can easily give perverse policy signals, over and above the practical measurement difficulties involved. (Targeting private sector domestic expenditure, which is all that monetary policy can influence, would make more sense… Disentangling his from public sector transactions isn’t easy, but perhaps could be accomplished if the ONS changd the way it put together the national accounts.)
More fundamentally, my point was that monetary policy and macroeconomic policy in general is, at best, a tool for stabilisation to mitigate shocks. Once we are in a situation of persistently weak growth (partly due to a massive shift in the terms of trade for oil and raw materials against the consuming countries in the West), the effect of monetary policy is likely to have little, if any, positive effect except to redistribute income from savers to the general taxpayer. It is the wrong answer to the problem.
On inflation, a number of international studies indicate that increases in both the mean level of inflation and its standard deviation reduce the level and the growth of real GDP per head. You say you’d swap 1pc real growth and 4pc inflation for no growth and lower inflation; but this trade-off wouldn’t be available for long, since the higher inflation itself would erode purchasing power and deepen the fall in real consumer spending, or alternatively it would lead to a tipping point (the familiar price-wage spiral of old) where it soon became self-defeating. By the same token, we can’t rely on another bout of currency depreciation to bail us out, since the higher import costs would choke off demand at home faster than exports could rise to plug the gap.
Finally, on the Bank of England’s record: Of course it targets forecast inflation, in that monetary policy has to be given time to take effect. So the policy decisions that resulted in overshoots in (say) February 2013 were, in theory, taken 2 years before. But then and now it has officially been targeting a return to 2pc inflation; it’s just that the target has been met more in the breach than in the observance and the Chancellor has been happy to turn a blind eye to the overshoots because he wants base rate to stay at rock-bottom and QE to continue.
In practice the Bank has been taking a pretty flexible approach to its CPI target in an attempt to ease credit conditions (and recognising that it can’t do much about the terms of trade shift which has pushed raw material import prices higher), but the government’s stance on capital adequacy and pro-cyclical regulation is going in the opposite direction.
There is much clutching at the free trade straw in this thread. However, in human affairs things are rarely simple and free trade is no exception.
Clearly no-one wants to see the sort of thing that happened when Japan was a rapidly growing export power in the 1970s. When someone tried to import cars into Japan they would be held up for months or years by faux safety tests on the brake lights or whatever.
But, as I understand it (and someone please correct if wrong) under WTO rules it can’t happen (or in practice doesn’t happen?) that goods are barred for environmental reasons. So, we enforce rules on farm animal welfare only to see markets taken by countries which have no or low standards. We might decarbonize industry only to see firms close their UK operations in the face of competition from coal-fueled competitors.
So, how do we prevent a race to the bottom yet prevent cheating a la Japan in the 1970s? What do we do about countries with a managed exchange rate that set it artificially low to boost exports like China in recent years?
The theoretical justification for free trade is Ricardo’s theory of comparative advantage. But what it’s advocates forget to mention (or perhaps don’t know) is that it rests on a whole raft of assumptions that are virtually never stated – for instance that industries along with the skills to run them, their supply chains and financing etc can move between countries as easily and effortlessly as it is possible to copy the formula from one Excel cell to another. In the real world assumptions DO matter so it’s very debatable how much, if any, value the theory has.
Then again there is the effect of economies of scale which are considerable in many manufacturing sectors – think cars, jet engines, big pharma etc – which translates into a lower cost base and hence to competitive advantage. Other things being equal, this means that the biggest wins. In the nineteenth century that was Britain by virtue of its first mover advantage in the industrial revolution so advocates of ‘free trade’ were doing no more than talk up the UK’s book. Then the advantage moved to the USA and now it’s moving to China. (In each case the move has been compounded by the incumbent getting too complacent and/or loosing the plot).
Just a very few years ago politicians here were spouting nonsense about the UK doing the clever design work for things that would be made in China. What is actually happening is that China is roaring up the value chain while we don’t train enough engineers to maintain even our modest existing position. Within a few years expect China to start using its muscle to enforce ‘free trade’ just as we did in the nineteenth century – the disgraceful opium wars being a case in point.
Alex, I accept money neutral in long run. But the short run boost to spending, hot potato etc must be seized. Not sure we’d get much inflation. Was just responding to your challenge to be honest about what I valued. Wages well ananchored. Plenty of competition in markets. Helpful short run agg supply curve.
I know some one looking at how CPI’s ingredients meant it worked well as guide in the great moderation but set policy too loose in run up …housing boom etc, but too tight after 2009, and therefore what ngdp level targeting would have delivered 2006 to now. Bank did fail dreadfully in 2008
And they wouldn’t be doing that unless …
Agree on policy being too loose and fuelling the credit bubble and then rates raised too rapidly in response to supply shock that pushed inflation up temporarily in 2007-08.
I also agree that broad money is now growing too slowly, but this is essentially a function of the broken banking system and transmission mechanisms of monetary policy. At some point policy rates will have to re-engage with market rates and real borrowing costs if policy changes are going to be effective going forward…
Bill le Breton, Alex Sabine,
You have ignored the posts by Jenny Barnes and John Dunn, arguing to the effect that things change totally when you take into account the fact that the planet is finite. That all sorts of remedies, which might work very well given infinite resources, will in fact fail because we are running out of those resources.
Is that because (a) you think the argument is nonsense, but don’t want to address it, or (b) because you think it might be correct, but don’t know enough to be confident in commenting? Please let us know!
And a supplementary. Perhaps you simply think we are not, yet, running out of resources.
Presumably you would accept that, long before the sun goes supernova (!), we shall at some point start to run out of fossil fuels, and/or mineral deposits that can be mined, and/or fossil hydrocarbon sources for all our plastics and pharmaceuticals?
If so, please will you think yourself ahead to that (remote???) point in the future, and tell us what modifications to economic policy would then be suitable?
Perhaps prayer, mental preparation for the end of civilisation and personal early death, together with lamentation that nothing was done early enough, would then be the optimised economic policy to advocate?
Nick,
The brief and simplified Manifesto for economic sense has been endorsed by a wide-range of mainstream economists, academics, think tanks, financiers, businessmen and labour leaders. We could do worse than base our message around these evidence based principles. The manifesto addresses short/medium term issues and not the underlying structural changes needed in the U, as noted by Alex Sabine or the longer term resource constraints highlighted by Jenny Barnes and John Dunn
@ Joe
I’m afraid I find the Manifesto for Economic Sense as convincing as the arguments from Krugman et al – ie not very.
Any analysis which refuses to acknowledge that public borrowing was too high before the crash is not a sensible one in my view.
And incidentally it is a rather arrogant name for a campaign, and is indicative of a cadre of economists who not only think they are right but consistently impugn the motives of those who disagree with them. Academia is supposed to be about debating different ideas.
No slight on Jenny or John intended. I am less concerned about depletion of resources than I am about global warming. But I suspect that steady growth of say 2.5% produces a political environment more conducive to the changes of behaviour necessary to drive down emissions.
So, for me the priority is to dispose of the artificial and psychological restraints that are preventing recovery. Central Bankers and their unaccountable policies got us into this once in a 100 year slump and those policies are keeping us in the mire.
Social.cohesion is a delicate construction. Any one who can think back to Bosnia should be concerned for what continuing slump can do in Europe. Or post slump Germany.
Bill le Breton says:
“I am less concerned about depletion of resources”
When people look at Peak Oil, to study what it means, they often jump to the idea that it means ( …we are running out of oil…). In fact, we are NOT running out of oil, and peak oil does not mean that. We are running out of CHEAP, EASY to access oil. So to be clear, peak oil is about the (production rate), of oil. I’ll use an analogy to underline why (high energy content) oil, is vital to the modern economy.
~ The human body is composed of about 85% water and is constantly replenished, to maintain its health. But, it only needs to lose 3% or so, water to be severely compromised, or even die. ~
Up until about 2007, the world economy needed 85million barrels PER DAY, to function as it was. The oil producing nations (in aggregate), are struggling to maintain that level, from ever depleting reservoirs. This is why the economy had a coronary in 2008, and why crude oil is expensive now and will continue to be so from here on. For some strange reason most economists see energy as an incidental, when in fact energy, is THE driving force of a modern economy. And without cheap oil, any expectation of Business as Usual returning, is a sham.
Nick,
to be fair the Manifesto for Economic Sense states its aims as promoting a rational economic debate and urges respondents to publically argue the case for a sounder approach, as indeed you, Vince Cable, Nick Clegg and others are doing. This debate is something we need to address in-depth at our conferences between now and the 2015 elections..
I am persuaded by the argument that the key priority now is to reduce unemployment, before it becomes endemic, making recovery and future deficit reduction even more difficult.
The manifesto statement is realistic in understanding there are no easy fixes, monetary or otherwise, but takes a rational approach in arguing that at the very least we should not be making things worse by big cuts in capital spending or big increases in tax rates on ordinary people. There is also the acknowledgement that there must of course be a medium-term plan for reducing the government deficit
It has attracted over 9300 endorsements from economists and thinkers around the world. Just looking at the initial batch of signatories gives a good idea of how disparate are the backgrounds supporting the basic principles espoused by Paul Krugman, Martin Wolf, Jonathan Portes et al:
Aaron Goldzimer – Stanford Graduate School of Business / Yale Law School
Alan Manning – London School of Economics
Alan Maynard – University of York
Alan S. Blinder – Princeton University
Alasdair Smith – University of Sussex
Alfonso Lasso de la Vega – Former Deputy Director in UNCTAD
Ali Rattansi – Professor, City University, London
Andrew Graham – Oxford University
Barbara Petrongolo – Queen Mary University and CEP (LSE)
Barbara Wolfe – University of Wisconsin-Madison
Barry Bluestone – Northeastern University
Barry Supple – University of Cambridge
Charles Wyplosz – The Graduate Institute, Geneva
Chris Pissarides – London School of Economics and Political Science
Christian Kroll – University of Bremen / Jacobs University
Christopher Allsopp – Director, Oxford Insitute for Energy Studies, Oxford
Colin Thain – University of Birmingham, UK
David Blanchflower – Dartmouth College
David Hemenway, economist – Harvard School of Public Health
David Sapsford – Edward Gonner Professor of Applied Economics (Emeritus), University of Liverpool
David Soskice – University of Oxford
David Vines – Oxford University
Demetrios Papathanasiou – The World Bank
Donald R. Davis – Columbia University, Dept. of Economics
Eric van Wincoop – University of Virginia
Erzo F.P. Luttmer – Dartmouth College
G C Harcourt – University of New South Wales, School of Economics
Gary Mongiovi – St Johns University, New York
Geoffrey M. Hodgson – Professor, University of Hertfordshire, UK
Geraint Johnes – Lancaster University
Gianni Zanini – World Bank (Consultant; former Lead Economist)
Hannes Schwandt – CEP/LSE and Universitat Pompeu Fabra
Heinz Kurz – University of Graz, Austria
J. Bradford DeLong – U.C. Berkeley
Jan-Emmanuel De Neve – University College London & LSE Centre for Economic Performance
Jeffrey Frankel – Harvard University
Jeremy Hardie – LSE Centre for Philosophy of Natural and Social Science
Joan Costa Font – London Sschool of Economics
Jocelyn Boussard – European Commission
John H Bishop – Cornell University
John Van Reenen – Centre for Economic Performance, LSE
Jonathan Portes – National Institute of Economic and Social Research
Joseph Gagnon – Peterson Institute for International Economics
Justin Wolfers – Princeton University
Kalim Siddiqui – Business School, University of Huddersfield, UK
Ken Coutts – Faculty of Economics, University of Cambridge
Kevin ORourke – University of Oxford
Larry L Duetsch – Emeritus Prof of Econ, U of Wisconsin – Parkside
Lesley Potters – European Commission
Marcus Miller – Warwick University
Mariana Mazzucato – University of Sussex
Mark Setterfield – Trinity College, Connecticut
Mark Stewart – Warwick University
Max Steuer – London School of Economics
Michael Ambrosi – Professor Emeritus, University of Trier
Michael Graff – ETH Zurich and Jacobs University Bremen
Michael Waterson – University of Warwick
Nathan Cutler – Harvard Kennedy School
Nattavudh Powdthavee – University of Melbourne and Centre for Economic Performance, London School of Economics and Politcal Sciences
Nicholas Rau – University College London
Olaf Storbeck – Handelsblatt – Germanys Business and Financial Daily
Oriana Bandiera – London School of Economics
P.E. Hart – Emeritus Professor of Economics,University of Reading
Patricia Rice – University of Oxford
Paul Anand – Open University/ HERC Oxford University
Paul Gregg – Professor, Dept of Social and Policy Sciences, University of Bath
Paul Krugman – Princeton University
Paul Whiteley – University of Essex
Peter E. Earl – University of Queensland
Peter Elias – University of Warwick
Peter J. Hammond – University of Warwick
Peter Taylor-Gooby – University of Kent
Peter Temin – MIT
Philip Arestis – University of Cambridge
Philippe Martin – sciences po (paris)
Professor Sir Richard Jolly – Institute of Development Studies
Raffaella Sadun – Harvard Business School
Raja Junankar – University of New South Wales, University of Western Sydney, and IZA
Raquel Fernandez – NYU
Richard J. Smith – Faculty of Economics University of Cambridge
Richard Jackman – London School of Economics
Richard Layard – LSE Centre for Economic Performance
Richard Murray – former chief economist, Swedish Agency for Public Management
Richard Parker – Harvard University
Rick van der Ploeg – University of Oxford
Robert A. Feldman – IMF and Adjunct Professor Georgetown U. (retired)
Robert H. Frank – Cornell University
Robert Haveman – University of Wisconsin-Madison
Robert Neild – Emeritus Professor,Trinity College, Cambridge
Robert Pollack – Boston University
Robert Skidelsky – Wawick University
Roger Middleton – University of Bristol
Roger Stephen Crisp – St Annes College, Oxford
Ronald Schettkat – Schumpeter School, University of Wuppertal
Sergio Rossi – Department of Economics, University of Fribourg, Switzerland
Shaun P. Hargreaves Heap – University of East Anglia
Sheila Dow – University of Stirling (emeritus position)
Simon Wren-Lewis – Oxford University
Stefan Szymanski – University of Michigan
Stephen E. Spear – Carnegie Mellon University
Stephen Gibbons – London School of Economics
Susan Himmelweit – The Open University, UK
Terry Barker – University of Cambridge
Tony Venables – University of Oxford
Victor Halberstadt – Leiden University
Wendy Carlin – UCL
William Brown – University of Cambridge
William T. Dickens – Northeastern University and The Brookings Institution
What extraordinary nonsense the neoclassical account of government debt above is!
The government is sovereign. This fact gives to government authority that households and firms do not have. In particular, government has the power to tax and to issue money. The power to tax means that government does not need to sell products, and the power to issue currency means that it can make purchases by emitting IOUs. Indeed taxation creates a demand for public spending, in order to make available the currency required to pay the taxes. No private firm can generate demand for its output in this way. Neither of these statements is controversial; both are matters of fact. The government’s budgeting is different from private budgeting, and should be considered in its proper, public context.
The government does not “need” money to “fund” its operations. It seems counter-intuitive, but the public actually needs the government’s money to pay its taxes rather than the government needing taxes to pay for highways, bridge repairs, schools, national defense, etc. For the household, paying back debt means they have to sacrifice current consumption (spending). For the government, no such financial constraint is imposed. Its ability to spend now is independent of how much debt it holds and what its spending was yesterday. That situation can never apply to a household or business firm, yet we blithely destroy our economy as if “debt” which is itself money somehow needs to be repaid by more “debt” which is also money and this would somehow reduce “debt” overall.
Reconsideratioin of our definitiions and approach to “money” is long overdue, andif the Orange Book absurdities had not been used to attempt to stifle radical Liberal discussion we would already be on the way to doing that.
Michael Parsons,
I would agree with your assertions that “The power to tax means that government does not need to sell products, and the power to issue currency means that it can make purchases by emitting IOUs. Indeed taxation creates a demand for public spending, in order to make available the currency required to pay the taxes. No private firm can generate demand for its output in this way. Neither of these statements is controversial; both are matters of fact.”
We do however need to consider our reliance, as a nation, on international trade. Particularly our dependence on food, energy, raw materials and consumer goods imports. In a world of globalised trade, we are not wholly sovereign, but rather locked into an international system of finance based on sound money, that requires we maintain the value of sterling at something close to puchasing power parity with other major trading nations. The Economists Big Mac Index shows sterling trading pretty close to parity at the moment.
The USA having the worlds reserve currency might get away with never-ending devaluation of the dollar. Our experience with devaluation in the UK has not been a good one, providing short-term relief at times, but little, if any, long term benefit.
There is a world of difference between the basic economic insight that household and government budgets are not analogous, and asserting that the government has no effective constraint on its borrowing!
Any government not intent on debauching the currency ultimately has to fund its borrowings in the marketplace. (Even though the Bank of England is funding part of the deficit by buying up gilts through QE, its commitment to reversing the process eventually is what distinguishes QE as practised here from the straightforward Zimbabwe-style monetisation of government debt that Vince Cable fretted about when QE was first introduced.)
The fact that the government has greater liquidity than a household does not imply that it can blithely disregard its long-run solvency.
Some critics of fiscal consolidation here seem to imagine that the current government is so wedded to austerity that it is trying to pay off its entire outstanding debts in this Parliament! Whereas in fact it is continuing to budget for enormous deficits each year to offset private sector deleveraging as best as possible, is presiding over a huge increase in the total stock of public debt, and isn’t planning to repay a penny of it until near the end of this decade.
Some perspective is needed, in other words! If the coalition were attempting something like the immediate 5pc of GDP tightening that the US fiscal cliff threatened, then I would agree that was overkill.
I have criticised the design of the UK fiscal consolidation package, in that it has followed the Darling plan by relying heavily on front-loaded tax rises and capital spending cuts while allowing government consumption spending to go largely unchecked way into the future. The weight of evidence is that a package that avoided tax rises, kept capital investment higher and cut current spending more boldly would have been more pro-growth in both the short and long run (and there is still time to tilt it in that direction).
Alex Sabine,
“The weight of evidence is that a package that avoided tax rises, kept capital investment higher and cut current spending more boldly would have been more pro-growth in both the short and long run (and there is still time to tilt it in that direction).”
This sounds about right if automatic stabilisers are allowed to mitigate the fall off in demand.
Samual Briitan has put forward some interesting proposals on management of the national budget for the benefit of the economy, that I think merit serious considaration and fleshing out Where an Augustinian fiscal policy falls short .
His proposal for a stabilisation fund to manage fluctuations in demand is of particular interest.
That is an interesting proposal, although I think it overstates the efficacy of fiscal policy in ‘normal’ times as a tool for ‘balancing the economy’ (which is precisely what Sir Samuel himself used to argue, since he signed up to the Nigel Lawson 1984 Mais Lecture assignment of roles for macro and micro policy – ie macro is counter-inflation, micro or supply side is growth).
However in an emergency there is a role for active fiscal policy over and above automatic stabilisers, and in this sense the ‘stabilisation fund’ could be useful.
I must admit I’m not won over by his assurances that we can rely on the central bank to ensure that the fund wouldn’t be spent in the good times… But in theory it could be useful, and it does make sense to look at the government budget in terms of its constituent parts rather than lumping everything together as if it’s equally important to growth or to fiscal sustainability.
Interestingly the Swedes in effect did this by running structural budget surpluses during the 2000s, giving them maximum headroom to stimulate when the world economy went belly-up…
Bill le Breton said:
“I suspect that steady growth of say 2.5% produces a political environment more conducive to the changes of behaviour necessary to drive down emissions.”
Well, thanks for not totally ignoring the elephant in the room. But this doesn’t really cut it, does it? Labelling climate change and resource exhaustion as “long term” issues (which means, let’s put these problems out of our minds, because they are too upsetting) is a cop-out. Yes, they are long term issues, in the sense that we should have acted a generation ago.
Just to be clear – This is not to argue in favour of the Austerians. There is nothing good about high unemployment. There is nothing good about sacking people, like the nursery staff required to look after young children properly with minimal resource costs. There is even less that is good if your policy, as Osborne’s has been, is to try to encourage private sector companies to grow as the public sector shrinks, replace low-resouce-intensive jobs with high-consumption jobs.
However – Keynesianism also has its limits when it acts to maintain an over-consuming economy which depends for its prosperity on selling people things they do not need, planning obsolescence, sacrificing resources just to give people work. It would all work fine if resources were infinite. But they aren’t. So, growth of 2.5% doesn’t really help us think about cutting emissions. First and foremost it tends to mean a 2.5% increase in emissions.
Growth has to be directed towards environmentally sustainable ends.
David Allen,
the peal oil argument has connotations of a Malthusian catastrophe i.e a forced return to subsistence-level conditions once population growth had outpaced agricultural production. Malthus did not forsee that the market would respond to increased demand by dramatially increasing the efficiency of agricultutal production to the point where food surpluses were generated even with exponential population growth.
The story of mankind has been one of continual technical progession. There is no reason to believe that, with the help of some intelligent public investmen in research and development, more sustanable energy sources cannot be developed in the coming decades, to cope with the anticipated scarcity in fossil fuels and dramatically cut carbon emissions at the same time.
Alternative energy in the form of thorium and or fast breeder reactors are available andinvestment in green energy alternatives will accelerate as technology improves and fossil fuel prices escalate.
Economic growth is driven by two factors – population increases and efficiency improvements in productivity levels derived from technological innovation and mechanisation. New light and strong materials such as graphene and new technologies such as 3d printing and using enzymes from bacteria to help with hydrogen-driven industrial chemical synthesis are all in the early stages of development and show great promise for the future.
The effect of austerity and leaving people to fend for themselves without work in Greece, has been a return to burning wood for fuel as heating oil has become too expensive for many. Athens is now clouded by a choking smog from wood burning stoves that emit up to 20 times the carbon emissions of fuel stoves and Illegal loggers are slashing through forests already devastated by years of summer wildfires.
I cannot believe that a party is electable, or supportable, if it simply pushes all its difficult responsibilities onto future generations. Doing that in economics caused the financial crisis we are now suffering from. Let us not repeat our mistakes in environmental and other fields. Let us instead learn the lesson.
“I cannot believe that a party is electable, or supportable, if it simply pushes all its difficult responsibilities onto future generations. ”
Read this and weep:
http://www.bis.org/publ/work300.pdf
The problem of ageing populations may be less dire than some analysts predict.
For one thing, many pensioners will have children of working age, and the children may be less averse to paying higher taxes if they believe that the higher taxes help support their older relatives in ways that are more efficient that private support.
For another thing, pensioners create demand, which is what our economic system seems to lack at the moment, so in that sense the ageing of populations may be a solution rather than a problem.
@ Joe Burke, you say:
“Malthus did not forsee that the market would respond to increased demand by dramatically increasing the efficiency of agricultural production to the point where food surpluses were generated even with exponential population growth.”
That’s correct, he didn’t forsee it. But that dramatic increase in agricultural efficiency (The Green Revolution), was facilitated with OIL, (more specifically cheap oil).
This thread is about the economy, and the political message and policy, of how to revive it. The problem is that, what we as a society, don’t wish to contemplate, (but must consider), is that perhaps a return to Business as Usual GDP growth, is just not possible?.
There is very clear evidence, to suggest that GDP growth is not the norm, but is instead, a 250 year blip. In the link below, please look at the 3 graphs on page(s) 62 & 63. We see (GDP), (Fossil fuels), and (Population), depicted over a historic period. If you were to overlay these three graphs, at the same scale, you would see a very clear pattern, that the increasing use of fossil fuels, is what gave rise to huge economic growth, and consequently, huge population growth. A blip in fact, (in planetary scale), of about 250 years, that may be nearing its end, now that cheap fossil fuels are nearing their end?
http://www.tullettprebon.com/Documents/strategyinsights/TPSI_009_Perfect_Storm_009.pdf
It has always seemed to me that those who say “we have to get used to living with less because the resources of the planet are finite” are working on the assumption that there is no more that can be done with the resources we have. And that is quite evidently not correct. Insight and innovation allows better use of the limited resources of the planet.
Joe Bourke’s mention of graphene is very interesting. Two Russian-born (but now British naturalized) scientists – Andre Geim and Konstantin Novoselov – working at The University of Manchester developed a simple mechanism for extracting graphene – a hexagonal lattice of carbon atoms that is only one atom deep, essentially a 2-D film.
Basically they put sticky tape on the lead of a pencil and pulled the graphene off.
Now that might sound almost ludicrously simple – but they won the 2010 Nobel Prize for it and got knighthoods. Graphene has extraordinary physical properties that are explained only by quantum mechanics. Its potential uses sound like the stuff of science fiction – read the Nobel citation for examples. It (like thorium reactors) can and will be a game-changer for the future.
This graphene technology process originated in a British University. British scientific and technological innovation continues to be world-class and step-change technology advances like these are vital for increased prosperity.
If the government is now prioritizing infrastructure development then funding for scientific research and technology should be given equal priority.
“Insight and innovation allows better use of the limited resources of the planet.”
That is true, but even if better used, those recourses, are still being USED UP, by a Year on Year, increasing population. And those depleting recourses are still FINITE.
As a pure thought experiment on economic growth, please try this :
Let’s use an analogy for GDP growth, using (Fossil Fuels), (Population), (Pollution), (Finite Planet), (Environment), (Time), and their relationship.
Take a large vat of grape juice, add a few thousand brewer’s yeast, and wait about 20 days. At the end of 20 days or so, the sugar is almost gone. The yeast population has increased from thousands to millions. And the resultant liquid that the yeast live in, is now toxic to them because of the alcohol and carbon dioxide pollution. On day 21, growth tails off, and the yeast begin to die off.
Is this sounding familiar?
John Dunn,
there is a key difference to note with energy. Energy is neither created or destroyed, it is merely transformed from one state to another. All the energy that exsits in the Universe today was extant at the time of the big bang The burning of fossil fuels transforms photo-syntheic solar energy captured in oil, gas, coal and other fuels to dispersed heat; powers our internal combustion engines and the elecromagnetic coils that generae our electrical power.
Advances in technology continually improve the efficiency of industrial and domestic energy recycling. The coming decline in easly extractable oil reserves presents an opportunity to wean ourselves off dependency of fossil fuels, while at the same time tackling the problem of greenhouse gas emmissions. Uranium or Thorium fuelled Nuclear power is a readiy avaliable source for electricity generation. Nickel or Lithium batterier that can power electric motor vehicles are already here and will only improve as take up of electric vehicles acclerates.
I used to travel on the London Underground daliy and recall an advert of a few years back. In 1900 average travel speed on London Roads ( horseback) was 11 m.p.h. In the year 2000 average travel speed on London Roads automobiles) – 11 m.p.h.
Where some see looming disaster, others see great opportunity. The old saying that ‘necessity is the mother of all invention’ was amply proved during the war- a period that saw dramatic leaps in innovation and new tehnology. With new developments like 3d printing and bacterial factories, we might even see the retun of low-tech manufacturing to the UK, particularly if high shipping costs push up the prices of imports from Asia.
John – yes, I understand your comment and the analogy. However humans are (sometimes) intelligent and adaptable animals, which cannot be said for yeast. You mention a cycle that involves fossil fuels and pollution.
Joe Bourke and I mentioned thorium power and graphene:
Thorium nuclear reactors are very safe, cheap to build and run, have very low security concerns (compared with traditional nuclear) and do not generate significant amounts of toxic waste.
Graphene is showing great promise as a replacement for traditional Li-ion batteries: graphene batteries may finally make the electric car a match for cars driven by fossil fuels.
Combine the two and you have cars that are powered by cheap graphene batteries charged from a non-polluting thorium power station.
Obviously my response doesn’t address issues like global population growth in terms of finite resources such as land: it is merely an attempt to broaden the discussion into the context of endogenous growth theory.
“putting-the-partys-message-in-a-distinctively-jedibeeftrixy-context-part-2-the-economy”
the coalition economic plan, as currently envisaged, will see spending as a proportion of GDP converge with the level of taxation, and thus bring an end to endless deficit borrowing. Which is to say that spending will decline to ~38% of GDP.
Jedibeeftrix considers this to be an EXCELLENT thing, and wholeheartedly commends it to ‘the party’.
More specifically, doha is a dead duck, but we are likely to achieve the same ends via multiple bilateral trade deals, rather than one mega multilateral deal.
Malthus told his mates that they should go easy, that one day that beer barrel would run out. They laughed at him, and told him there was plenty of beer left. They were right! The party didn’t stop.
The Greens of the 20th and 21st centuries told their mates that they should go easy, that there were lots of signs that the beer barrel might run out soon. People seemed to be tipping the barrel about, drilling for beer miles below the oceans, ripping up beery sands because they couldn’t seem to get enough beer out of the ordinary tap. Their mates laughed, and boasted about how clever they were to get beer out of sand, and how that proved that barrels are in fact infinite, and that the barrel would never run out.
Then the barrel ran out..
“Energy is neither created or destroyed, it is merely transformed from one state to another.”
Yes, but the Second Law of Thermodynamics says that entropy – the degree of disorder – must continually increase.
If you have a lake of water at the top of a mountain, you can let it flow downhill, turn a turbine, generate electricity, run an electric fire, and make the world a bit warmer. That’s it. You can’t say to that warmer world “now, will you please cool back down a bit, and thereby pump the water back up the pipe?”
“Advances in technology continually improve the efficiency of industrial and domestic energy recycling.”
There’s no such thing as energy recycling. Advances in technology just help us convert more high grade energy (fuels) into low grade heat energy.
David,
what I refer to is what wikipedia defines as energy recycling i.e. “the energy recovery process of utilizing energy that would normally be wasted, usually by converting it into electricity or thermal energy. Undertaken at manufacturing facilities, power plants, and large institutions such as hospitals and universities, it significantly increases efficiency, thereby reducing energy costs and greenhouse gas pollution simultaneously. The process is noted for its potential to mitigate global warming profitably.This work is usually done in the form of combined heat and power (also called cogeneration) or waste heat recovery.”
David Allen is quite correct, energy “re-cycling” is a very misleading term. Moreover, neither waste heat recovery nor CHP generate more energy than the processes on which they depend. Indeed, they generate relatively minor amounts of useful energy. They can help in an energy crisis, but the immutable physical laws of thermodynamics prevent them from being a solution to anything but relatively minor issues.
The issue here is the perceived threat that ‘Peak Oil’ poses to future economic growth, not the interesting but divergent question of the relative degree of entropy in heat transfer or the physical impossibilty of developing a perpetual motion machine.
Extractable oil reserves would have run out long ago were it not for continuing and incremental advances in drilling technology. Alternative energy sources to crude oil exist in the form of abundant supplies of coal and gas as well as bio-fuels,, nuclear energy, wimd, wave, tidal, solar and geothermal energy. These souces of energy combined with advances in energy conservation and carbon capture; improvements in materials; chemical engineering; life sciences and manufacturing techniques should offer the prospect of maintaining economic progress in a cleaner, less polluted environment, far into the forseeable future. It is a repeat of our experience with the agricultural revolution on the eighteenth and nineteenth centuries that swept away concerns at the time of a looming famine and a forced return to subsistence-level conditions.
Joe :
I have children in their early twenties, trying to make their way in an economically stalled, and confusing directionless world, and I (like you), am desperate for the good news on growth, not least so that they can enjoy the lifestyle (or better), that I have enjoyed through my ‘boomer’ years.
I hope you are right Joe, but I just don’t see it. For a better understanding of where we are with oil right now, I suggest a Google of the following :
EROEI (Energy Return On Energy Invested)
Export Land Model
Seneca Effect
John Dunn,
Like you I have kids in their twenties. I don’t underestimate the potential impact of Peak oil on the economy that they will rely on, but in common with Bill le Breton above, I am somewhat less concerned about depletion of resources than I am about global warming, particularly in light of the developing alternative energy sources.
If society is forced to wind back consumption as a consequence of scarcity of resources and lack of ability to develop atlernative souces of energy, but reduce the potentially catastrophic threat of climate change in the process, I think I would take that trade-off at this point in time.