Monthly Archives: November 2012

Greek tragedy – politics, not economics

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One of the books I’m currently reading, Dominic Sandbrook’s [amazon_link id=”0141032154″ target=”_blank” ]State of Emergency[/amazon_link], is too big to carry around so on the Tube I’ve read [amazon_link id=”184954400X” target=”_blank” ]Greekonomics: The Euro crisis and why politicians don’t get it[/amazon_link] by Vicky Pryce. It’s an excellent contribution to understanding the Eurozone crisis.

Pryce is Greek by origin and so has the authority to criticise her native country about its genuine faults – clientilism is one of the major issues she highlights. However, she rejects two arguments sometimes heard: that the Greeks are to blame for the crisis because they’re lazy and expected to consume without producing; and that the Euro crisis is all the fault of the peripheral indebted nations – Portugal, Ireland and Spain as well. She writes: “While the political, administrative and judicial systems in Greece are dysfunctional, there is potential in sectors of the economy which could be harnessed to drive a more prosperous future.”

In fact, politics is the major theme of the book: it argues that the Euro’s creation was a political project not rooted in sound economic analysis. The initial hubris involved in launching the single currency was followed by a failure to either plan for the inevitable tensions or crises, and total failure to enforce and implement the structural reforms that might have made the Eurozone economically viable. She makes a forceful case. Before the Euro was launched, while seeing it as mainly a political project, I thought the macroeconomic inflexibility it involved would be more than offset by supply-side improvements, including the achievement of a genuine single market without currency barriers. This optimism was obviously misplaced. Indeed, we are still seeing in the crisis countries how hard it is politically to deliver structural economic reforms.

What to do next? Pryce argues, first, that European leaders need to recognise that if Greece leaves, the Euro itself will collapse, at huge economic cost. And, secondly, that a large chunk of the peripheral country debts will have to be written off. Germany cannot avoid either accepting partial default or the collapse of the Euro. However, she is optimistic about the scope for continuing progress on productivity in Greece.

No doubt some readers will disagree with parts (or all) of her analysis, but the book sets out the debate very readably, and underlines the links between the political and the economic forces at play –  links everybody overlooked in those long-ago pre-crisis years.

[amazon_image id=”184954400X” link=”true” target=”_blank” size=”medium” ]Greekonomics: The Euro crisis and why politicians don’t get it[/amazon_image]

Glam rock, homework by candlelight, and inflation

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Yesterday I started on Dominic Sandbrook’s tome on Britain in the years 1970-74, [amazon_link id=”0141032154″ target=”_blank” ]State of Emergency[/amazon_link], a sequel to his [amazon_link id=”0349115303″ target=”_blank” ]Never Had It So Good[/amazon_link] on the 50s and [amazon_link id=”0349118205″ target=”_blank” ]White Heat[/amazon_link] on the 60s. The seventies were clearly eventful enough to need twice as much space as the predecessor decades. Although weighty, his books are very readable and this one is very evocative of a period I remember as a young teenager growing up in north west England. Events at that stage of life make a strong impression on one’s later outlook.

I remember well doing homework by candlelight; my parents used to send me down the hill to write down the times of the scheduled power cuts posted in the window of the electricity showroom. Mrs Thatcher obviously learned the lessons of Edward Heath’s defeat by the miners before she took on union power a decade later. But inflation made a deeper impression on me. Mum had a cupboard where she stockpiled foods whose price was rocketing, things like sugar, coffee and flour. And was ‘not that hungry’ when we wanted second helpings. She was obsessive about turning off lights, too. Of course we’re not in the same territory now, but food bills have gone up much more than the general price level. The well-off can cope, but for people on low incomes, which never keep up with prices in such times, rising inflation is a source of huge anxiety. The 1970s made me an inflation hawk.

Some great music though – and Sandbrook writes about that too. Marc Bolan and David Bowie were my soundtrack (when the power was on) in the early 70s.

[amazon_image id=”1846140315″ link=”true” target=”_blank” size=”medium” ]State of Emergency: The Way We Were: Britain, 1970-1974[/amazon_image]

The Carbon Crunch – book review

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Dieter Helm has written a terrific book about energy policy and climate change, [amazon_link id=”0300186592″ target=”_blank” ]The Carbon Crunch: How We’re Getting Climate Change Wrong and How to Fix It[/amazon_link]. I’d recommend it to everyone, no matter what their prior views. Helm has the clarity of analysis and respect for evidence that characterises the best empirical economists, combined with an understanding of the messiness of practical politics and the difficulties we all have in coping with great uncertainty about events far into the future.

His own conclusions and recommendations are clear, and clearly explained; but even readers who disagree with some of those views will get a lot out of the book, even if only by facing up to challenges to their own assumptions.

Helm accepts the mainstream scientific view that man-made climate change is likely to increase global temperatures by at least 2°C, so he will get off on the wrong foot with those who do not believe this. However, he shares with them a distrust of past arguments by green campaigners and the climate change ‘industry’ of officials and academics, not to mention certain industry lobbies truffling around for subsidies. This might make the book interesting even to readers who do not believe there is a climate change problem. (Indeed, it’s possible that it will most annoy some green campaigners!) According to The Carbon Crunch, green advocates and politicians have landed the UK, and the EU in general, with “one of the most expensive ways of generating low-carbon electricity known to man – intermittent offshore wind.” (p6)

The chapter on wind power makes a strong argument against the case for this form of generation, whether onshore or offshore. Helm points out that deriving 15% or 20% of our electricity from this source requires investment in a whole new generation, distribution and transmission system – it is not a marginal change to our existing infrastructure but will require tens of billions of pounds in investment year after year for decades. Wind doesn’t blow all the time, and there is less of it in the winter when the demands are highest. So investing in turbines has to be combined with investing in back-up generation. This will be more expensive than if it were the main source of power – for example, suppliers could not take out long-term contracts for gas imports if they are only required to generate power intermittently. A new system of wires connecting widely-dispersed turbines to the grid would be needed, a big investment. The number of turbines needed to contribute a significant proportion of our electricity is huge, and the environmental impact (including the roads built to construct them and service them) correspondingly large. And so on. I would be interested to see a ‘windy’ response to this chapter, but I found it persuasive. Solar is an even more expensive alternative and makes no sense in northern latitudes. Nuclear is a less unrealistic part of the generation mix, Helm argues, but new reactors cannot be built on a large scale quickly enough. With high initial capital costs and then very low marginal operating costs, the main obstacle is the political uncertainty involved in running nuclear power stations over many decades: Germany is a good example of how fickle governments can be, given that its politicians opted to switch from existing nuclear to dirty coal post-Fukushima. Helm is sceptical about the prospects for nuclear investment. (NB I’m on a stakeholder advisory group for EDF Energy until my term expires next March; it is planning to invest in new reactors.)

The book also points out how fanciful it is to rely on changes in people’s demand or behaviour to reduce CO2 emissions. As long as China and other developing countries continue to grow, emissions will grow too. Helm is scathing about European self-satisfaction over reduced emissions in the EU: this has only come about thanks to deindustrialisation and importing carbon embedded in imports from China, he points out. The EU also has mutually incompatible policies: a renewables directive that will bring about an increased supply of low-carbon electricity, reducing the price of carbon in the EU emissions trading scheme – which would encourage gas or coal generation: “Countries with large-scale renewables progammes will end up selling on their surplus emissions permits, so others can increase their emissions.”

As for energy efficiency, Helm is sceptical about the existence of large unexploited opportunities to use an expensive resource more efficiently. Besides, greater efficiency would reduce the price of energy, causing people to use more of it (the ‘Jevons Paradox’). Demand has increased steadily as countries grow richer. For example, the average house in Britain was kept at a temperature of 13°C in the 1970s, compared with 18°C now (a staggering increase – no wonder I remember always being cold when I was young!) And those houses are now packed with electricity-hungry gadgets.

However, the book does not end up in despair, but rather with some straightforward proposals. First, charge a carbon tax to increase the price we pay for anything carbon-intensive, whether coal-fired electricity or imports of aluminium from China. It won’t be perfect but will have a powerful effect on demand, as we saw in the 1970s energy crisis. “It cannot be stressed too strongly how powerful the carbon price is in underlining the carbon pork-barrel, and with it all the lobbying and vested interests that exploit government decision making.” (p179) Secondly, stop generators burning coal and instead switch to gas as a transitional fuel for power generation, with some new nuclear build – this is happening in the UK and US but other countries, notably Germany, have gone the other way, and China is still burning coal massively. Finally, invest in R&D into new forms of generation, storage, electric cars and so on – some of the investment won’t work out, but some will. Well, I’m an economist too, so using the price mechanism seems pretty sensible.

Too sensible? Helm’s final words: “World leaders have a lot to answer for, and it is unlikely that history will judge them kindly. There remains hope that, at this late stage, effective action will be taken. Climate change is a problem that can be cracked – but it won’t be on current policies.”

[amazon_image id=”0300186592″ link=”true” target=”_blank” size=”medium” ]The Carbon Crunch: How We’re Getting Climate Change Wrong – and How to Fix it[/amazon_image]

Barthes, Derrida and all that jazz

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There’s a new [amazon_link id=”0745656153″ target=”_blank” ]biography of Jacques Derrida[/amazon_link] by Benoit Peeters, reviewed by Terry Eagleton. As an economist, my education in literature and critical studies is pretty scanty, but I have read Roland Barthes [amazon_link id=”0374521506″ target=”_blank” ]Mythologies[/amazon_link] (sitting in the Kramer Books cafe in Washington DC).

[amazon_image id=”0745656153″ link=”true” target=”_blank” size=”medium” ]Derrida: A Biography[/amazon_image]

So over breakfast this morning I asked my husband (degree in French and German literature a million years ago) to sum up for me the difference between the two authors. He pondered an said, “Derrida is like Barthes going off on one.” So unless anybody persuades me to the contrary, I’ll stick to Mythologies. There was a new edition published earlier this year. The New Yorker reviewer Richard Brody liked best the essay ‘African Grammar’: “It exposes the colonialist rhetoric that is embedded in the popular press under the guise of journalistic objectivity.”

I preferred the hymn of praise to the Citroen DS, surely one of the most beautiful cars ever designed:

“I think that cars today are almost the exact equivalent of the great Gothic cathedrals: I mean the supreme creation of an era, conceived with passion by unknown artists, and consumed in image if not in usage by a whole population which appropriates them as a purely magical object. It is obvious that the new Citroen has fallen from the sky inasmuch as it appears at first sight as a superlative object .. We must not forget that an object is the best messenger of a world above that of nature: one can easily see in an object at once a perfection and an absence of origin, a closure and a brilliance, a transformation of life into matter…”

The essay clearly inspired generations of advertising copywriters….

The Citroen DS

Social vs financial capital

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This morning’s email brought notification of this new working paper, Social Capital and Attitudes Toward Money. On a quick first read, its finding is rather interesting – in a sample of 634 Russians aged 20-59, there’s a clear negative correlation between civic identification and concern to get more money. To quote the summary:

Attitudes toward money as a means of influence and protection and the desire to accumulate it reflect a personal sense of dependency on money and lead to constant concern about it. A greater social capital, by providing social support that serves as an alternative source of security, influence, and protection, may reduce this dependence on money. An important finding of our research has been that the component of social capital that correlated most frequently and strongly with monetary attitudes, was civic identity.

This is a small sample in a distinctive country, but it reminded me of one of my all-time favourite social science books, Eric Klinenberg’s [amazon_link id=”0226443221″ target=”_blank” ]Heatwave: A Social Autopsy of Disaster in Chicago[/amazon_link]. He compared ‘excess deaths’ (ie. above the level you would normally expect) in different neighbourhoods of Chicago in a heatwave, controlling for income levels and other poverty indicators. Similar neighbourhoods that differed only in their ethnic composition had different rates: there were significantly more ‘excess deaths’ in African-American than in Hispanic neighbourhoods, due to the stronger family and community support in the latter.

[amazon_image id=”0226443221″ link=”true” target=”_blank” size=”medium” ]Heat Wave: A Social Autopsy of Disaster in Chicago (Illinois)[/amazon_image]

(I’ve not read Klinenberg’s latest, the best-selling [amazon_link id=”1594203229″ target=”_blank” ]Going Solo: The Extraordinary Rise and Surprising Appeal of Living Alone[/amazon_link] – the reviews were a bit sniffy about it. But I probably should, given how good Heatwave is.)