Sunday, November 20, 2011

Stability is Destabalizing

A post from a couple of months ago charted the course of various post-WWII US recessions and posed the question Was there a structural change in the economy in the late 1970s - early 80s?
Over the period from the late 1950's to 1980, US macro-economic policy became better and better at managing recessions. They continued to come at roughly the same frequency, but they were shorter and shallower than the earlier ones. This could, potentially, indicate an increase in rigidity over time as US macroeconomic policy attempted to 'smooth out' the business cycle.
A recent post at Resilience Science draws attention to a similar matter and provides a nice set of links to analytic resources relative to the issue. Here is a key passage:
In complex adaptive systems, stability does not equate to resilience. In fact, stability tends to breed loss of resilience and fragility or as Minsky put it, “stability is destabilising”. Although Minsky’s work has been somewhat neglected in economics, the principle of the resilience-stability tradeoff is common knowledge in ecology, especially since Buzz Holling’s pioneering work on the subject. If stability leads to fragility, then it follows that stabilisation too leads to increased system fragility. As Holling and Meffe put it in another landmark paper on the subject titled ‘Command and Control and the Pathology of Natural Resource Management’, “when the range of natural variation in a system is reduced, the system loses resilience.” Often, the goal of increased stability is synonymous with a goal of increased efficiency but “the goal of producing a maximum sustained yield may result in a more stable system of reduced resilience”. The entire long arc of post-WW2 macroeconomic policy in the developed world can be described as a flawed exercise in macroeconomic stabilisation.

Saturday, November 12, 2011

Climate skepticism: An Anglo-Saxon phenomena?

To date, the bulk of research on media coverage of climate skeptics has centered has been done by Max Boycoff and looked at the US media. The recently released Poles Apart: The International Reporting of Climate Skepticism provides global take on the issue. The Guardian has an interesting post about the report.

Significantly, the report distinguishes among a variety of different types of skeptics
  • "trend sceptics" (who deny the warming trend)
  • "attribution sceptics" (who accept the trend, but attribute it to natural causes)
  • "impact sceptics" (who accept human causation, but claim the impacts will be beneficial or benign)
  • "policy sceptics" (who, for a variety of often political or ideological reasons, disagree with the regulatory policies being promoted to tackle climate change)
  • "science sceptics" (who – again, for a variety of reasons - believe climate science not to be trustworthy)
The report analyzed newspapers in six countries and found that the so-called "Climategate" affair received much more attention in the UK and the US than in Brazil, China, France or India and that "significantly more" sceptics are mentioned in the UK and US media than in the other four countries.

The report mentions a variety of factors relevant to the differential coverage:
Outcomes are usually determined by the interaction between internal processes or factors within newspapers (such as journalistic practices, editorial culture, or the influence of editors and proprietors as well as political ideology) and external societal forces (such as the power or presence of sceptical lobbying groups, sceptical scientists, sceptical political parties, or sceptical readers who are simply fearful of higher taxes or energy bills). An array of other factors, such as a country's energy profile, the presence of web-based scepticism, and a country's direct experience of a changing climate also play a role.

For comparison, Boycoff's recent work, which deals with primarily with the extent of climate change coverage by various media outlets around the world, is available here and in the lecture below.

Thursday, November 3, 2011

Human agency and the Euro crisis

Social systems, unlike natural systems, involve human agents who act with particular intentions. The current Euro drama illustrates this nicely. Paul Mason's 'tankist view of the Euro crisis' uses a brilliant physical analogy to clearly explain the deal that was struck a week ago:
In search of a metaphor in this crisis, I repeatedly come back to tank armour. An ultra-modern tank is almost impossible to kill because it is covered with a mixture of ceramic, textile and metal plating that is designed to disperse the incoming energy of an anti-tank projectile: laterally.
After it's done its job the armour does not look pretty, but it works - as long as you don't get hit again.

For all the criticism of the eurozone - the greyness of the political elite, the indecision, the bunga bunga etc - their strategy is not just "kicking the can down the road". It is about dispersing the energy of the debt explosion. For velocity itself is important in the kind of collision we are talking about: over-accumulated debt impacting on real world growth. If you can slow it down, a debt explosion looks like just a long, dreary recession as people pay down their borrowings.

Now to the design of the armour: the complex system being - I will not say designed, but improvised - is composed of layers.

Layer one is the Greek debt write-off. This disperses the stress away from the Greek treasury - which can no longer control its ballooning deficits - and into the EU banking system. ....

The second layer of armour is the 108bn euro bank recapitalisation programme: money from states, Far Eastern investors and the EFSF bailout fund (see below) will be used to shore up the balance sheets of the affected banks. To visualise this, again, imagine a uranium dart hitting a surface that spreads the impact - in this case across a complex fabric of financial entities stretching from Dubai to Shanghai. ...

The deepest layer of armour Europe is trying to clad itself with is the EFSF. There is 726bn euros of taxpayers money committed, which translates into 440bn euros lendable. What they are trying to do is turn that into 1.4tn euros lendable - and the Brits want even larger - by getting, again, global lenders - including China, Brazil, the IMF and Middle East Money - to lend against the 440bn: once again spreading the impact laterally. ...

At each level then, the EU response consists in taking a concentrated impact and spreading it out - across Europe, across the world, and over time.

Given that the post was written a couple days before Greece's decision to hold a referendum on the European Union aid package intended to resolve the country's debt crisis (a decision that has now been withdrawn), Mason was prescient in his observation on the limits of his physical analogy.
However, in economics as opposed to inert matter, there is the problem of people not wanting to take the hit. Right now nobody wants to admit they are even putting themselves in line to take the hit: the German parliament, the kebab-shop phobic Italian right, the IMF, the Greek people. Everybody wants someone else to take the hit.