Slowing GDP, inequality, and the environment.
GDP and Simon Kuznets
Summary: Although Kuznets helped to create the concept of the Gross Domestic Product (GDP), he also warned that it is a poor tool for economic policymaking. Consumption does not equate to wellbeing and quality of life. Policies designed to maximize production and consumption (max out GDP growth) can cause a feeling of permanent crisis. Also, after 75 years, GDP growth is slowing down, causing systemic fault lines. Debt is rising, especially low-quality debt. Both interest rates and inflation are low. Currently, even under near-zero interest rates, inflation stays close to zero, while normally both are inversely related. We even have negative interest rates. Public health care spending has skyrocketed, while productivity growth is stalling. Innovation drives productivity gains, but today increased productivity is no longer associated with higher wages.
The authors make a strong and convincing point against misuse of the GDP. Indeed, if wellbeing is our goal, than maximizing GDP might be contra-productive. The pursuit of ever growing GDP has caused the economic system to stall. Worse, it created a “whole basket of other problems”, such as more inequality.
Waves and technological revolutions
The relation between technological breakthroughs and inequality is shown using Kuznets Waves, a modification of the Kuznets curve by Branko Milanovic. These technology-driven economic waves reminded me of other works, not mentioned in the books. First Alvin Toffler and also Kondratiev, who hypothesized about long-term waves (45-60 years) based on technological drivers. Another association that emerged in my mind, although more vague, was Spengler who early on spoke about a decline of the West.
Milanovic shows that when a technological revolution tops, inequality also tops, but then drops again as we adapt to it and new measures are taken to fight inequality. However, currently policymakers around the world have prioritize quick technological development and growth, without taking measures to limit inequality.
Summary: Inequality grows. Thomas Piketty is referred to. The richest 10% of the population control an increasing share of the total wealth of nations. In 2011, this led to the Occupy movement, which wanted to take power and money away from large corporations. According to Joseph Stiglitz, economic mobility has stagnated. Families in the bottom 50% don’t have enough means to meet emergencies such as COVID-19. Achieving higher levels of social mobility would be important for a stakeholder economy.
The explanation of Kutznets curves and inequality is very well done in the book. Not being an economist, I’ve learned from it, and I’m sure many other readers will benefit as well.
The environment and global warming
Summary: The pursuit of GDP also neglected externalities such as pollution and environmental degradation, which limits our wellbeing. Maximizing production also depletes natural resources. Currently more resources are used than can be renewed. The Club of Rome gave a presentation in Davos, pointing to the limitations of arable land, freshwater, oil, and gas. The short-term warnings of the Club proved inaccurate and less problematic, but today, we see the effects. Although “ecological footprint” is only an accounting measure and imprecise, it’s clear that our current usage of natural resources is unsustainable. The IPCC has warned that current CO2 emissions will lead to an unstoppable cycle of global warming, which will lead to natural disasters, climate migration, and so forth. Greta Thunberg was invited to speak at the WEF in 2019, where she said: “our house is on fire”.
The belief in global warming caused by humans, as shown in the book, is total. Not one critic or one bit of doubt is presented. It is just stated as fact, without much discussion. It looks like the authors preferred to neglect the whole discourse. Somewhat this is agreeable, as the book is on economics, not on climate science. But since so many political and economic choices depend on this climate position, I’ll take the opportunity to present a few doubts.
We know that most CO2 is produced by nature. The role of oceans is not yet fully understood, but it is huge. Feedback loops exists, as was pointed out by James Lovelock in his Gaia hypothesis. More CO2 production will invite more CO2 uptake. It also seems that the sun has some influence. If there is one constant, than it is change itself – the climate always changes. For example, we just come out of the “little ice age” after the Medieval warm period.
Even when agreeing about the dangers of global warming, one can disagree over which measures to take. Jeff Gibbs and Michael Moore made a documentary, Planet of the Humans, showing the devastating environmental damage caused by “green” policies, including the burning of woods (biomass). Another documentary, The Uncertainty Has Settled, made by Marijn Poels, shows how climate has become big business.
Political, ideological or financial factors probably have influenced scientific research. Such became clear from Climategate. It makes sense: people are motivated to pursue a career in climate science often out of (ideological) concern, while funding for such research depends on the amount of alarm generated by said research.
Disagreeing scientists – there are a enough of them, but somehow their views don’t get much media coverage – are often found outside official climate science, which is being used to discredit scientific peer critique. E.g. dr. Ivar Giaever, a Nobel prize winning physicist, called global warming a non-problem and many more scientists dissent and dissent. Dissenting is dangerous: you can be fired.
Another problem with climate science is the high dependency on models (simulations). Models often have weak or uncertain assumptions that can cause unlikely results when you extrapolate. Also they are simplifications of the real world, so it is easy to miss or undervalue less known factors (variables). Linear models further suffer from very small changes and uncertainties in initial conditions, which can cause unexpected large deviations in outcomes, as the chaos theory shows. One of the founders of chaos theory was Edward Lorenz, who was experimenting with weather simulations. To solve these ridiculously large outcomes caused by “insignificant” initial conditions, he developed a theory now known as Lorenz attractors or strange attractors. Dynamic systems often have a few stable points to which they tend. Global warming becoming “unstoppable”, moving away from all attractors, seems unlikely.
Even if we try to combat global warming, solutions are not easy. Electric cars are great, but not without environmental costs. We don’t know yet how to recycle solar panels, which contain heavy metals that endanger the environment. Wind mills might be interesting, but also have problems. Pushing green policies without taking into account problems, critics and uncertainties seems irresponsible to me.
Yet the authors proudly describe in Stakeholder Capitalism how Greta Thunberg was invited to speak for the WEF. She is the daughter of two antifa parents and was being seen wearing antifa clothing herself. She told that our house is on fire, and indeed one year later buildings were set on fire by her Marxist antifa friends. As such, the WEF has consciously chosen sides with antifa & wokeness, confirming uprooted cosmopolitan globalist culture. This could partly explain the tremendous amount of distrust in the WEF which I encountered online in various communities – conservatives, Christians, farmers, libertarians, and so on.
The success of the authors might be dependent on public discussion. Global warming alarmism combined with unbalanced lockdown evangelism might hurt trust in the WEF. Even a well-known senior journalist in Holland, connected to one of the largest newspapers, is now questioning the intentions of the WEF:
At the cost of unmeasurable human suffering! Those people of the WEF – under Klaus Schwab – are really mad and are a concrete danger. They invite the suspicion that they are busy with rolling out an agenda. Wierd Duk, 2021-02-26 on Twitter. Translated from Dutch.
This journalist doesn’t stand alone. The former Czech president Vaclav Klaus wrote Blue Planet in Green Shackles and called measures against global warming “economically damaging and freedom endangering”.
So yes, I’m spending many paragraphs on the subject of climate, because I believe this issue to be one in dangerous waters. Support for the stakeholder capitalism concept and the WEF itself might be damaged if this issue is treated in a one-sided way.
In the first chapter, commitment to small businesses (Mittelstand) was in the making, and in the beginning of the second chapter, urgent problems with stagnating GDP-oriented economic policies, growing inequality and resource scarcity were addressed. These are important problems, but siding with antifa adds to the the already rampant political polarization. Using COVID-19 and global warming alarmism as leverage might not be a safe bet, even is this is currently en vogue among large corporations and cosmopolitan politicians.
Worse, the economic consequences of a full take on global warming are staggering. It can lead to wealth loss and more inequality. I call for a scenario analysis, which must include a truth table for global warming (false, maybe, true) and a risk assessment.
The usage of natural resources has gone very high, such is for sure. However, the authors don’t take into account the possibility that new technology will find ways to limit our dependence on such resources, or will find new sources of energy (e.g. Thorium. However, some pessimism is warranted. Pollution, including the plastic soup, is a serious problem.
More promising, and also not mentioned by the authors, are efforts to combat desertification using livestock. We can feed people, change deserts into green lands (which have a high CO2 uptake), and promote wellbeing, according to biologist Allan Savory in a TED talk.
Other promising developments are the rise of products that are designed to be long-lived and repairable by the owner. So instead profiting from planned obsolescence, companies can win customers by offering quality parts.
I will continue to review the book with an open mind, trying to reach out, as we – yes, as humanity – face enormous environmental, economic, cultural, social, and maybe even spiritual or religious challenges. Policies that might entertain wide support should be investigated, and some of the policy proposals of the WEF are likely to win such support. I will try to limit my reviews to the contents of the book, but the book cannot be seen outside of the context of public discussions going on right now, especially not when the authors take an opinionated position and when the WEF blocks critical journalists. That’s why I had to point this out, and had to include a few solutions that could be acceptable over a wider political spectrum.
The next part of this review series will cover chapter 3, which is about Asia, a part of the world where some of the oldest civilizations emerged and where currently much development is happening.
If you want to follow my adventure with this book, just follow this weblog or check my twitterfeed or Facebook timeline with the hashtag
#wefbookclub or the mention
@WEFBookClub for the next few weeks. You might also order the book, and maybe even join the WEF Book Club on Facebook, so you can make this a participatory experience for yourself.
Also check the index page of my review series that I will update as I add blogposts on this subject.