Avoiding tyranny

The email exchange below took place in late September 2019 between Feasta’s Brian Davey and Martin Wolf, the chief economics commentator at the Financial Times, who is also a guest lecturer at the School of Economics of Nottingham University. The exchange refers to a critique which was recently sent by Brian to the head of the School of Economics, a few other professors and the guest lecturers. It is published here with the permission of the authors.

From Martin Wolf

22.9.2019

You make two points:

1. The current slowdown in growth is due to ecological constraints.

2. We need to reduce GDP in wealthy countries sharply.

I can see no reason to suppose the first proposition is true. There is no evidence that the growth slowdown in the high-income countries is due to ecological constraints. Moreover, at a global level the slowdown is very modest, anyway. This isn’t plausible.

The second proposition may be true. But I think people who argue as you do need to be much more honest about the politics of this, just as you argue that economists should be more honest about the economics. The only society that could force such a reduction in GDP levels and the end of growth is a tyranny. There is no chance that this could be achieved in a liberal democracy. Indeed, it is no accident that liberal democracy emerged with the industrial revolution. Moreover, all tyrannies in human history have been radically inegalitarian. Of course, you might like us to become hunter gatherers again. But that would not only mean eliminating most human beings, it would also mean eliminating almost all they know.

Martin

From Brian Davey

22.9.2019

That was a quick reply. Try reading the second reference [in the critique]:
https://surplusenergyeconomics.wordpress.com/2019/09/02/155-the-art-of-dark-sky-thinking/

From Martin Wolf

22.9.2019

It doesn’t help me. Sorry. If fossil fuels were running out, their prices would be rising – dramatically. But they aren’t. By the way, you seem to think that price changes are just a product of a monetary economy. But, while I don’t think money is just a veil, it is not the reason large changes in relative prices occur – and those relative price changes are surely telling us something.

Martin

From Brian Davey

22.9.2019

Not true. Since the price of energy enters into ALL production and service industries and is a major household expenditure that is inelastic, a rise in the price of energy  drains money out of the pockets and budgets of companies and individuals leaving less purchasing power for non energy expenditure – this, in turn, has a deflationary impact. So purchasing power is transferred from non energy to energy sector to pay for the declining productivity/rising costs of the energy sector. 

There are several research papers that show that when the proportion of GDP devoted to energy goes above a certain percentage this triggers recession. In this regard rising energy prices have a pervasive macro economic effect rather like rising interest rates. 

In fact I did not say they were running out; I wrote that the energy cost of energy was rising. The gross production may be rising but the proportion delivered to the rest of the economy is falling. 

Brian

From Martin Wolf

22.9.2019

I agree with that conceptually. 

But what price rise? The real price of oil (US CPI deflator) is currently bang on the average of the last 50 years.

Martin 

From Brian Davey

22.9.2019

That’s what the American economy can afford – but is it what the oil industry, indeed what the whole energy sector, needs to make a profit and thus be long run viable? 

There is an oscillation here – either the price of oil, gas and coal is high enough for the energy sector to cover its costs and thus make a profit, in which case it is too high for the economy. In that case the economy then comes crashing down. Then, when the economy comes crashing down energy prices fall with the deflating economy and then energy prices are too low for the energy sector to make a profit. Catch 22. That’s where the limits to growth leads – a Catch 22 as larger parts of the economy become unviable. The so called “Retail Apocalypse” reflects this – people are curtailing their discretionary expenditure as they have less purchasing power for discretionary purchases. This is often put down to internet purchases but it actually includes restaurants too. 

Gail Tvberg is good on this question of affordability – this is her latest post which argues, with plenty of hard statistical data that 

“Our problem is not just that oil prices that are too low. Prices are too low for practically every type of energy producer, and in many parts of the globe.”

(In fact all her articles return to this point over and again like a stuck record)

https://ourfiniteworld.com/2019/09/12/our-energy-and-debt-predicament-in-2019/

and this article was written by her in August and is titled “Debunking Lower Oil Supply will raise prices”. 



From Brian Davey

22.9.2019

From Martin Wolf

22.9.2019

I would need an awful lot of evidence to convince me that our current problems are due to energy constraints. I just don’t see it. But I will look at this “evidence”.

People always see what they want to see. That is human, I recognise that this is true of me. But I more than suspect it is true of you, too.

Martin 

From Martin Wolf

22.9.2019

I definitely agree that an oil price spike can contribute to a short-term recession. Yet measured global GDP is about five times as big today as it was in 1970, in real terms. Energy constraint? Not obviously! 

I really don’t think there is any evidence that the current economic slowdown is due to any significant energy constraints. Of course, if it were indeed true, you should worry much less: it would mean that the growth of GDP is going to stop naturally. Surely, the reason for someone with your perspective to worry is that the precise opposite is the case: GDP growth is not going to stop naturally, at least in the near future. It will take strong and determined action to make that happen.

By the way, my chart of real oil prices is different from yours. I don’t know what deflator you are using. As I said, the current level is firmly in line with the 50-year average.

Martin 

From Brian Davey

22.9.2019

As I have said before – I don’t think you have read the article and argument of Tim Morgan. There is evidence in there. Morgan is former head of research at Tullett Preborn and he has compiled a data base which he calls “SEEDS” – Surplus Energy Economics Data System. He has an alternative measure to GDP which he calls “personal prosperity”. It is based on adjusting GDP figures to take into account that much of the increase in GDP arises in the spending of borrowed money – you get higher expenditure but you are in debt. After this adjustment he arrives at a figure he terms “clean GDP”. He then adjusts “clean GDP” for the rise in the energy cost of energy because you are not really better off if you are simply paying more for the same thing because of the declining efficiency of the energy sector. What you are left with is a category that he calls “personal prosperity”.

Though GDP per person was slightly (4%) higher in 2016 than it had been in 2006, personal prosperity in Britain deteriorated by almost 9% over that decade. When the public went to the polls, the average person was £2,150 worse off than he or she had been ten years previously, and was, moreover, significantly deeper in debt. Britain’s trend energy cost of energy (ECoE) has risen from 3.4% in 2003 to 9.2% now.

So the evidence is there – but if you simply use GDP figures you can’t see the evidence – which is why the public is so angry and politicians are so out of touch. You are just using unadjusted GDP figures. You would have got this if you had read the Morgan article and tried to understand this. 


One of my frequent arguments is that mainstream economists have a secret weapon – they ignore their critics and, because they are so powerful and influential, they get away with it. It was ever thus – I remember an article by Joan Robinson saying the same thing.  You argued back to me, not from having read Tim Morgan’s arguments but from pre-conceptions. Your evidence is based on money valuations, not on statistics with the necessary adjustments. In that respect, starting in 1970  fails to impress me too. In my original article I said that the original LtG authors dated the problems as kicking in in the first two decades of the 21st century, not 1970. And here you are, Morgan’s figures for personal prosperity – note the dates.

From Martin Wolf

22.9.2019

Debt is a transfer of spending power. The need for this transfer has nothing to do with alleged limits to growth. It has to do with the distribution of income. I won’t spend my (limited) time on such palpable nonsense. 

And I am afraid your political views seem to me a fantasy. The only way you can get what you want is via an ecological tyranny. Why not be honest and admit it? I would really respect that.

Martin

From Brian Davey

22.9.2019

Make up your mind. I seem to remember that you argued that banks created the money that they lend and therefore it is not a transfer of purchasing power but the creation of new purchasing power at the same time as the creation of debt. 

So, you would really respect me if I said my intention was tyranny.  I think this discussion has ceased to be useful. Even more so if you are frightened of it being open.

Brian

From Martin Wolf

22.9.2019

Banks create debt. This is true. And as a result, there are claimants upon this debt (the holders of the ultimate deposits) and those who owe it. The reason we need to create this debt and so purchasing power is that those who have the income in our society do not wish to spend it in adequate quantities. The problem then is insufficient demand (related to income distribution), not insufficient supply, which is what an energy constraint would imply. This was a central theme of my book The Shifts and the Shocks.

I am also quite certain that the only way you could force the people of this (or any other) country to reduce their standards of living by, say, 50 per cent (I think I am being generous here on the numerical implications of your goals) is via an ecological tyranny. Everything I know about human society tells me this. Do you think you could get elected on such a platform? If so, please try it.

Martin

From Brian Davey

22.9.2019

I will add this:

You appear to be chiefly concerned to portray me as having a will and desire to reduce everyone’s standard of living which you then argue can only be imposed by tyranny – and thus you wish to portray me and others that think the same way, as would-be ecological tyrants.

I find this exceedingly offensive. May I point out that failure to adequately address climate change and biodiversity collapse will likely lead to extinction through massive sea level rise, droughts and flooding devastating global agriculture, the death of pollinating insects and other species, the loss of soils, collapse of fish stocks, mass migration and conflict and the like – and what could be a greater tyranny than existing generations and the global rich driving the world’s poor and the future generations to early graves  – because that is what continued growth will lead to.

We know that for reasons explained in my paper. For 30 years the OECD and all the rich countries have claimed that they could decouple economic growth from resource use, pollution and ecological destruction. Now the evidence is in – a recent paper by the European Environmental Bureau gives 99 peer reviewed articles which show there is no evidence to support this strategy at all and masses of evidence not to believe it. You cannot dematerialise production. Decoupling has failed. Growth therefore means greenhouse gassing life off the planet. It means biodiversity collapse and a destruction of eco system services on which all of us and other species depend.  That’s why I used the phrase ‘mainstream economists are unwittingly advocating collective suicide’. But they ought not to be unwitting. It is your job to be up to date on the science – there is huge uncertainty but the risks are very alarming. The trouble is most economists are not interested. They are totally ignorant of these risks and therefore don’t give a damn. This is a profession that has lost its moral compass – not that it has one since Adam Smith.

Secondly I argued that growth is ending anyway because of the rising energy costs associated with depletion. I gave figures. I did not choose this to happen or advocate for it. It is an involuntary process. What I am arguing for is trying to ensure communities do not get hurt as it proceeds – and the rich paying the main part of the bill because the poor have nothing to give anyway. I am advocating returning to what I remember when I went to university in the late 60s – where the rich were taxed at a fair rate.

I also said that if this is happening then, if it happens early enough, it might help resolve the crisis in the biosphere which is very serious – if we find the right approaches, policies and institutions to address it. Advocating community gardens is not advocating tyranny. Advocating sharing public transport is not tyranny. Advocating repair cafes and workshops to cope with energy descent is not advocating tyranny. It is trying to avert an evolving catastrophe.

Tyranny is kicking around the homeless. Tyranny is tying up vulnerable, disabled and sick people in bureaucratic obligations like working even when they have terminal illnesses. Tyranny is corporations kicking indigenous people off the land whose biodiversity they have been protecting – and then claiming carbon credits and claiming they are doing carbon mitigation. Tyranny is setting fire to the Amazon to grow more beef for the American market which is already a market of too many fat people. Tyranny is disaster capitalism – making money out of the desperation by building prisons, arms industries, security and surveillance. Tyranny is policy vandalism and thuggery of the austerity kind – squeezing those who have nothing rather than those who have more than they need – so that the rich can preen themselves as very important people, which they are not.  

Do me a favour…..

Brian

From Martin Wolf

22.9.2019

Well, I find offensive the charges you levy at all economists. Are you really entirely surprised?

From Brian Davey

23.9.2019

I did not levy my “charges” at “all” economists. In the very first email I wrote “departments of (mainstream) economics that promote growth in an ecological crisis.”  I referred to “mainstream” economists at various points in our exchange and also about “most” economists. So I am not intending to criticise social ecological economists – though I would explain here that I include in my critique so called “environmental economists” who are part of the conceptual mainstream. I would also say that I disagree profoundly with economists like Nicholas Stern who promotes climate mitigation as a way to encourage growth. How he can square that with the latest evidence of the utter failure to decouple resource use and pollution from growth when the global economy is operating as if we had 1.7 planets and is way above a sustainable load in the eco-system escapes me. 

I note that you acknowledge that the idea that global gdp in wealthy countries needs to be reduced sharply “may be true” – but you don’t believe that can be achieved without “tyranny”, so anyone promoting a non suicidal economic course is a would-be tyrant. But as I hope I made clear in the above rant – is it not true that anyone proposing a suicidal course by advocating further growth in a world in destructive overshoot is advocating tyranny because they are advocating sending today’s children to early graves?  Only if you can decouple growth from resource use and pollution at a sufficiently rapid rate can you continue to have growth and the EEB “decoupling debunked” paper shows that you cannot. There is a mountain of evidence in that paper – it is reference (5): https://eeb.org/library/decoupling-debunked/  

Incidentally it may interest you to know that one of the reasons that I am not a part of the Extinction Rebellion group is that I think their proposal for “decarbonisation” by 2025 is crazy and I have opposed it explicitly as being akin to the ideas of Pol Pot. So kindly stop attacking me for what you assume my point of view is rather than what it actually is.


Brian

From Martin Wolf

23.9.2019

Fair enough. I just think – I really truly think (this is not a mere debating point) – that the dilemma is far greater than you seem to admit.

Let us start from your proposition that we are currently using 1.7 planets to produce our global GDP. So, to be “sustainable”, GDP needs to fall by roughly 40 per cent. In 2017, global GDP (measured, as it should be, at 2017 purchasing power parity) was $128bn (according to the IMF), which is an average of $17,000 for each person on the planet. Adjust that downwards, as required, by 40 per cent. So global GDP needs to be cut to around $80bn and average global GDP per head needs to be around $10,000 (or, of course, less). Since the number of people continues to rise, the latter has to fall continuously, of course. 

I think you would agree that, if global GDP is to be capped forever, the only equitable way would be via rough equality across countries (and, I also assume, within them, too). It would be impossible surely to tell people who live below the world’s required average that they must be poorer forever than those who happened to get a head start on the plunder of world resources a few centuries ago. So, at least ideally, no country should in future have a GDP per head higher than $10,000 (and this also needs to fall over time). 

So what would this mean? It turns out that India’s GDP per head could still expand by 40 per cent before it hit the ceiling. Sub-Saharan Africa’s could even rise by 150 per cent. But China’s current GDP per head at PPP is already $17,000. So China’s per head would need to fall by 40 per cent. 

Now consider today’s high-income countries. The UK’s total GDP and average GDP per head would need to be cut by close to 80 per cent and that of the US by substantially more than 80 per cent, to get to the new average of about $10,000 at PPP. For the high-income countries as a whole, the cut would be almost exactly 80 per cent. 

You talk of recent “austerity”. Well, what we are talking about here is nothing like that at all. It would be a plan to reduce UK GDP per head, for example, (roughly) to where it was in 1935. Now, I understand the composition of GDP (and consumption) would be different from what it was then and we know things now (notably in medicine) that we didn’t know back then, which should make such austerity less intolerable than it would be simply to go back to the 1930s. Still, it would be utterly transformative. Annual consumption per head would be roughly £7,000, in today’s pounds.

Is there any way to achieve this by consent? Note the three challenges that would be faced. First, humanity would have to agree on the global output cut (the 40 per cent above). Second, humanity would have to agree that, in the new constrained world, access to resources (and so output) would need to be reasonably equitably shared across countries. (We might get agreement that people who live in cold climates would get a bit more, but obviously nothing like as much more as high-income countries now get.) Third, we would need to agree on reasonably equitable sharing of resources within countries, since aggregate national GDP would now also be tightly constrained. 

To achieve this by general global consent would, in my view, be impossible. There is not the slightest sign that people would accept the implications for their own lives. So there are only two likely ways out. The first is a generalised ecological collapse, mass starvation etc. I believe that is what you expect. I believe that in such a world, we would have a war of all against all, with the strong seeking (successfully, alas) to exterminate the weak. The alternative would be a global tyranny, as I suggested. I don’t think in practice that the latter is conceivable. It just seems to me to be the logical position for you to take, if you don’t want the ecological collapse to happen.

So, to come back to where we started. For honest economists, the question is whether growth can be sustained. I recognise that is indeed a challenge. For honest ecological economists, the question is whether there is any politically bearable way of avoiding the catastrophe they foresee. 

These seem to me to be tragic choices. All I am suggesting is that you admit this.

From Brian Davey

23.9.2019

I think most people whose ideas I respect acknowledge that we are facing not severe ‘problems’ – for problems have solutions – rather we are facing a ‘predicament’ (or dilemma if you like). Predicaments or dilemmas do not have solutions but do have outcomes. A problem is being in danger of falling off a cliff edge – you can walk back from the edge. A predicament is to have fallen off – this has an outcome. 

I happen to believe, with you, that it is now too late to avoid a catastrophe – but having said that we are still able to think of what the outcomes would be and what *might* make the outcome somewhat better. I emphasise the words “might” and “somewhat” better.

 Of the two kinds of limits to growth crisis – pollution and depletion – I think that the depletion and rising costs of production impacting on the growth rate is evolving quicker than the pollution damage to the biosphere/biodiversity crisis/and climate crisis. 

The pollution damage is likely ultimately to be far more devastating and less manageable  and that it why I hope we run out of fuel before we drive over the cliff edge. The signs are at least that the chronic financial problems of the fracking industry will also soon affect the rest of the energy sector. 

There is great uncertainty and I think scenario analysis is required but no scenarios look very hopeful and I have been thinking about these issues for at least two decades.  My recent writings and thoughts on the situation have included this, which is titled “Anticipating the coming of troubles – envisaging a lifeboat economy”. I am also working on thinking about the mental health implications. So…to come onto your latest remarks in more detail.

The calculation of a $10,000 / £7,000 average sustainable global industry is a useful reference figure. Frankly living with this level of income itself does not worry me so much as the transition from where we are now down to that figure. (I am 70 years old and for the few years before I retired my income was about £7,000 per annum. I was a freelance ecological economist but the only source of income were NGO campaigning organisations – pessimistic messages by Cassandras like me did not put me in a high earning bracket. I got by with a slow erosion of savings as well as paying a low rent in a very small flat without a car. It is possible. Ironically when I reached pension age my income rose to £11,500 pa – no doubt it will fall again if and when the global financial crisis number 2 bashes the pension industry and the Bank of England decides to inflate away a finance crisis. Whatever.. )

What I will say about any future transition of the global economy and the UK economy down to £7,000 is another matter.  If politicians actually understood what was happening and, if as a society we were able to discuss how we are going to cope with the change, then maybe we could manage the process to some degree. 

However people would mostly regard the idea of such a transition with horror. The richer they are the more that they would be horrified. This is in large part because I believe they would be be unable to make linear adjustments downwards. There are  abrupt discontinuities in downwards adjustment processes because there has to be some match between income, occupation, habitat, and relationships – and also physical and mental health. I call these “life style packages” where enough of the right kind of employment is needed to pay an adequate income which is required to finance a family of a certain size to live in a big enough habitat. Thus a significantly large loss of one part of a package has knock on consequences to all parts of a lifestyle. For example the loss of a job and its income may threaten the whole package – daily routines, habitat arrangements and therefore relationships – and these there may then be a threat to physical and mental health.

As the broader transition gathers pace an increasing number of people who would be in transition anyway fail to make it. Those in early adulthood, or during a mid life crisis or at retirement may end up homeless. sleeping in doorways, unemployed and on their own  (eg after leaving the parental home to try for independent living with a job and a partner). The next thing you know you have a generalised mental health and public health crisis and, as in California, faeces in the street, tent cities and people with typhus.  This goes along with people finding that what they have trained for and aspired to, is no longer viable – and they have lost their anticipated future and do not know where they are going anymore.

So a transition down to £7,000 pa per capital will lead to large numbers of displaced, dislocated and disorientated people – also from the wars that are already breaking out – fostered by MI6, the CIA and Al Quaida…  

I ramble… – just to say then that I do not underestimate the problems at all. And yet things could be done to make £7,000 the basis for a viable lifestyle. It is possible to envisage infrastructures of support to make for a viable and fulfilling life at £7,000 with few or no big ticket personal possessions. For example for displaced and dislocated people – move-through “asylums” in the old meaning of the word like the monasteries and nunneries that played such an important role supporting poor people in medieval times though without necessarily the religious connotations. Such big house models could provide education, training and re-skilling. They could also provide shared domestic services – perhaps student halls of residence would be a better analogy. For others shared workshops spaces and repair arrangements perhaps in conjunction with adult education and community services. Community gardens and community supported agriculture to re-localise and re-engage people in food production. Community fridges and community kitchens of the type organised in world war two.  Community and public transport systems. Support arrangements for DIY ecological renovation of buildings and homes. 

It is also necessary is make absolutely clear what the major problem of poverty and a £7,000 pa per capita lifestyle is in current circumstances. I know because I live with people who are poor despite having two degrees in economics. It is that you get persecuted by petty bureaucracies on the orders of policy thugs in government. That you are looked down upon and that life is insecure, very insecure. It is not just that you have low purchasing power, it is also that you live in fear that you will lose even that and that you will be humiliated. You have it rammed down your throat that you are poor and therefore are considered a ” failure.” Dealing with this arrogance, cruelty and inhumanity of the rich is THE biggest problem of all which is why getting down to £7,000 is a process that will ideally start right at the top and work downwards….

To conclude – what has all this got to do with economics? Economics was originally a branch of moral philosophy dealing particularly with management of households and it needs to be reconstituted as such if we are to live on £7,000 per capita per annum. You will note that this involves a complete rethink of not only finance but also what is commonly thought of a social care, community development, energy, food, land use, mental health. That’s the challenge…

From Martin Wolf

23.9.2019

I think we have somewhat converged on our understanding of the implication of your views. I think creating the new society you envisage would take tyranny and you imagine that a just society might emerge. I am pretty sure I am right on this. I am certainly far more pessimistic about humanity than you are.

I think our big outstanding difference is over whether resources are already binding. I think the evidence is against that, quite strongly. 

Thank you for this educational exchange, even if the exchange consists in understanding each other better.

Martin 

From Brian Davey

24.9.2019

OK. Your last piece read like a summing up. So I will sum up too with this comment:

The tyranny already exists – and your newspaper writes for it. It is the tyranny of the 1% or of the 1% of the 1%. These are the people who hide their agendas in tax havens and secrecy jurisdictions, who are well connected into the deep state of the military-industrial-surveillance and media complex. They straddle membership of too big to fail banks, big oil and power companies, international agri business corporations and the petro-chemical companies. They organise coups and colour revolutions, claiming that they are defending democracy. They arrange character assassination to jail the people who expose their war crimes and dirty dealings like Julian Assange and Chelsea Manning. They steal land from indigenous communities where the last of the biodiverse landscapes can be found and continue a global process that has been going on for centuries – namely the theft of different kinds of commons. This process of theft has been going on for centuries creating monocultures that destroy biodiversity – and mainstream economists have been their chief advocates for hundreds of years with their phony ideas like comparative advantage where the conclusions are already contained in the assumptions of the argument – while never taking into account ecological and community realities.  They dump their wastes and pollution into the commons destroying the land, the forests, the atmosphere and the oceans. The consumption of this group and their desire for yet more wealth is now the main threat to everyone else on the planet, to the other species and even to the life expectancy of their own children. As Euripides put it, “Those whom the Gods would destroy they first send insane.”. He was referring to the greek myth where Hercules is sent mad and kills his own children. So my final comment to you is this. When you talk of tyranny look at the mainstream of your own profession – look at Milton Friedman and the Chicago boys who assisted in Pinochet’s coup in Chile. Look at Hayek who wrote about the necessity for unemployment to discipline the labour force “because without a free reservoir discipline cannot be maintained without corporal punishment”. So Martin I leave you with this quote from Anais Nin: “We do not see things as they are. We see things as we are”. 

From Martin Wolf

29.9.2019

I think this is a highly biased way of representing the last few centuries of history. You represent virtually everything that has happened as a conspiracy of a tiny number of evil capitalists. So far, so Marxist. The truth is that an enormous number of people have enjoyed what are, in comparison with the lives of their ancestors, great boons: enormously extended lives; and a vast increase in their personal freedoms. More important, this is what much of the rest of humanity wants, too. And, to a considerable extent, that is what has happened in, say China, over the last few decades.

People have tried to divert that capitalist energy into revolutionary socialism over the last century. Surely, we can agree that the result was tyranny orders of magnitude worse than the ones you list. Now you come along and say, sorry, none of you can have all those economic benefits in future. Indeed, we are going to reverse the promise of economic progress, forever. And even if you don’t accept that, it is going to happen, anyway, and you are all going to suffer terribly in the process.

We are talking about something vastly bigger and more oppressive even than the wars of Mao, Stalin and Pol Pot upon their people. We have to recognise what your view means. That is all.

Featured image: Detail of Mosaic panel depicting the madness of Heracles (Hercules furens), from the Villa Torre de Palma near Monforte, 3rd-4th century AD, National Archaeology Museum of Lisbon, Portugal.