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Free Markets and Free Trade, Ecology and Economics

Wednesday, May 13th, 2015

(This article was first published as a Google knol and then transferred to wordpress.com. I re-publish it here as a basis for discussion. © Klaus Rohde).

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  1. Marco Parigi

    December 2, 2008

    One implicit assumption of your knol here is that Ricardo’s principle is not legitimate for cases where the axioms are not reflected in reality. My view regarding these kind of principles is that what is important is that the dynamics predicted by the principle are reflected in reality, and that the mathematics behind the model based on these axioms is tenable and usable at the same time. The test to determine when to stop using Ricardo’s principle is when alternative models show better predictive value. Predictions of Malthusian catastrophes seem to be very unreliable at the least.From what I can tell, countries often behave as if those 7 assumptions were true, even if most of them are false.I am not really clear on the dependence of concepts on whether a system is in or not in equilibrium. When is an economy thought of as being in equilibrium? Are there tests independent of the economic models used?

    • Klaus Rohde

      December 2, 2008

      Concerning your question:”When is an economy thought of as being in equilibrium?”Below are some definitions for economic, genetic and ecological equilibrium. Economists would have to answer the question concerning relevant tests, but it seems to me that only an actual evaluation of data a posteriori could show whether equilibrium has existed or not.From Wikipedia (http://en.wikipedia.org/wiki/Equilibrium):“In economics, economic equilibrium is simply a state of the world where economic forces are balanced and in the absence of external influences the (equilibrium) values of economic variables will not change. Market equilibrium, for example, refers to a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers. This price is often called the equilibrium price or market clearing price and will tend not to change unless demand or supply change.”“A genetic equilibrium occurs when an allele within a gene pool is not changing in frequency (i.e. evolving). For this to be the case, evolutionary forces acting upon the allele must be equal and opposite. The only basic requirement is that the population be large enough that the effects of genetic drift are minimised. One example is Hardy-Weinberg equilibrium.” There is nothing in Wikipedia on ecological equilibrium, which I would define as follows: An equilibrium point in an ecological system is the population (or community) density to which the population (or community), which has temporarily deviated from it, will always return. Or: an ecological system is an equilibrium system when its density fluctuates around a midpoint. – One might be inclined to add that fluctuations around the midpoint should not be excessively large, although this introduces a subjective aspect to the definition: what is excessive?As pointed out above for economic equilibrium, it seems to me that only an evaluation of data a posteriori can distinguish equilibrium from nonequilibrium ecological systems. One might then make projections for the future development of the system on the basis of whether conditions are likely to change.

    • Klaus Rohde

      December 2, 2008

      Concerning the first part of your comment:”The test to determine when to stop using Ricardo’s principle is when alternative models show better predictive value.”I commented on this already in my knol: it is not so much another model that is needed, but”a careful analysis of local conditions permitting a decision on the benefits of free trade may often be useful, in particular when a powerful nation deals with a small developing one.”

  2. Ryan Faulk

    January 23, 2010

    Horrible — 1. “Since this knol was published, Paul Krugman was awarded the Nobel Prize for Economics for work which clearly implies that Ricardo’s principle does not realistically describe what is actually happening.”- And Obama won a Nobel Peace prize, and Hayek also won a Nobel in economics. Do you even know who decides who wins a nobel prize in economics?2. You are treating freedom as some prescriptive model. It is not, it is what happens when you don’t threaten with imprisonment. These are not dueling prescriptions, but the violent imposition of rules vs. resistance to them.There is “free market dogma” in the same way there is “no murder dogma” and “anti violent theft dogma”. I’m also dogmatic in there not being a god.3. Your characterization of competition is hideously ham-fisted. Firms make deals with each other in supply lines, as do animals in nature. You clearly have not explored arguments for freedom in good faith.4. States control the money supply. See fiat currency and central banks, and in the US see the federal reserve system. The financial market is perhaps the most state-controlled market there is, and thus is chaotic because the false certainty of a state decree leads to chaos.5. Hysterical citizens voting for war is only an issue if there is a state. That’s a failure of your ideology, not freedom.6. The Oil lobby is powerful and does things to prevent alternative energy from coming on line. The state enables cartelization by creating a “web of difficulty” that large firms can bypass, or only apply to new firms entering an industry, or are fixed costs (like a license) which disproportionately hurt small firms. Again, this is a problem of the state.

    • Klaus Rohde

      January 22, 2010

      Thanks for the comment, it is always good to hear somebody who does not agree with you.1. I commented on earlier Nobel prizes in economics and Obama’s peace prize in my blog http://blog.une.edu.au/klausrohde/ .Comments welcome;2. When I say free market dogma I mean (and I believe this is perfectly clear) that free markets are often but not always useful; an examination of local conditions may be important;3. Yes, to a degree, but unfortunately weaker economies are often forced into deals unfavourable to them because they have no other choice; and it is not always companies but governments which determine the rules;4. May be but perhaps not controlled enough;5. ????;6. Yes, indeed, this may well be the case, but wrong rules imposed by a state do not mean there should be no rules.

    • Peter Baskerville

      January 23, 2010

      Anonymous, now that you have taken the trouble to register, why not write a Knol that best outlines your view of the topic that Klaus has developed here. It would be great to read your views in an article rather than just responses to this one.

  3. Michael Pathak

    February 7, 2010

    Industrial Symbiosis as a way of meeting Ecological Economics needs — Industrial Symbiosis is a means of achieving continued growth in the economy whilst minimizing the impact on the environment. It is claimed that an industrial ecosystem in industrial symbiosis may behave similar to the natural ecosystem where everything gets recycled. Technological tools such as open source virtual globes like Google Earth can be used to determine that locations for optimizing symbiosis. A good resource is the following.W. Doyle and J. M. Pearce, “Utilization of Virtual Globes for OpenSource Industrial Symbiosis”, Open Environmental Sciences, 3, 88-96.The link to the article is herehttp://www.bentham-open.org/crdsb/?TOENVIRSJ/2009/00000003/00000001

  4. Seema Singh

    September 30, 2011

    nifty tips — Markets dramatically change they their flow and no one exactly produce or expect 100% from their profits . Choosing the right indicator or analyzing software blended with human aspect gives better results.regards:- http://www.trade4target.com/

Booms and busts in the global economy. Fuzzy Chaos Modelling in Ecology and Economics

Tuesday, May 12th, 2015
This is an article published originally as a Google knol and later transferred to wordpress.com, © Klaus Rohde. It addresses the important question whether globalization increases the likelihood of chaotic fluctuations in the economy, i.e. excessive booms and busts. It is re-published here with the intention of stimulating a discussion.

 

4 Comments

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  1. Gerd Zeitler

    November 27, 2008

    Your comment to my knol “Aussenhandel” — Dear Mr. Rohde,yes, a very unusual but convincing approach to view economic problems in a globalized world. Although the causes of todays recuring problems are very obvious in economic terms. Nevertheless, there seem to be synergies between the two scientific approaches.Best regardsGerd Zeitler

  2. Peter Greenfinch

    January 4, 2009

    Is less fluctuation a goal? — Hello, Mr RodheI’m not too sure that many subpopulations make things more stable, among human beings at least, as the more populations, the more divisions there are, and the more source of interpopulation conflicts might arise. Another thing, quite contradictory to what I just said I admit: the less fluctuation in a system, the more static it is, therefore the less it can evolve and make progress.Where is the truth ? Where does that lead ? I’m all the more interested in your topic that I wrote two related knols: “fuzzy logic” and “democratic globalization” http://knol.google.com/k/peter-greenfinch/fuzzy-logic/2m7299842u04v/44#http://knol.google.com/k/peter-greenfinch/democratic-globalization/2m7299842u04v/50#Peter

  3. Klaus Rohde

    January 30, 2009

    Empirical evidence for my suggestion — Here is empirical evidence for my suggestion that globalization can lead to synchronized global recessions. The Economics Editor of the Sydney Morning Herald writes in “What started the global crisis rolling” on January 31 – February 1, 2009.“This is the most synchronized world recession we’ve had since the mid-1970s. In the world recessions of the early’80s there was a lot of variation in timing between countries. In the world recession of the early ‘90s the US went in first, with Europe following later. – In the mild world recession of 2001, not all countries had a recession.”“Question is, why is the world economy now more synchronized? Is it a product of globalisation – the greater integration of national economies, particularly through greatly increased trade and flows of funds between countries?”He gives the answer in the last paragraph of his article:“ So, yes, globalisation probably has a part to play in propagating the global recession we’re about to experience. But the most obvious bit is media globalisation.”

Don’t support science but obscurantism!

Saturday, April 18th, 2015

If you don’t know the meaning of obscurantism, here it is (from the source of all wisdom, Wikipedia): “Obscurantism (/ɵbˈskjʊərəntɪsm/) is the practice of deliberately preventing the facts or the full details of some matter from becoming known.”

This is what the Australian government is doing, in this case represented by the Minister of Education Christopher Pyne. See here:

http://www.smh.com.au/environment/call-for-pynes-resignation-over-4-million-funding-to-climate-contrarian-20150417-1mnp51.html

It cut many millions of Dollars in funding from the budget of CSIRO, the foremost research organisation in Australia which has done much work on the science of climate change, and many other science projects, but is quite happy to invest four million in a centre to be located at the Business School of the University of Western Australia and devoted to misleading the public (officially “The new centre will focus on applying an economic lens to proposals to achieve good for Australia, the region and the world,” said a statement from UWA).

An extract from the article:
“The government would cover roughly a third of the cost for an Australian iteration of Dr Lomborg’s Copenhagen Consensus Centre at the University of Western Australia (UWA), confirmed Mr Pyne’s office following an investigation by The Guardian Australia.

The news comes on the heels of the Danish economist’s move to the UWA’s school of business and his appointed as Prime Minister Tony Abbott’s advisors on foreign aid.

Labor and environmental activists heavily criticised the appointment, questioning why someone who played down the effects of global warming should be advising on policy concerning developing countries in the Pacific that were exceptionally vulnerable to climate change.”

Dr.Lomborg is not an environmental, but a political scientist and is highly sceptical of the importance of climate change. He has lectured on statistics and the new centre at UWA is in the business and not the science school. He does not deny that climate change is real and human-induced, but thinks it is “not the end of the world”. Climate scientists do not claim that climate change is necessarily “the end of the world”, but Dr.Lomborg’s views differ sharply from those of the vast majority of climate scientists who take the risks much more seriously and want to do something about it. The establishment of the Consensus Centre and the appointment of Dr.Lomborg can only mean that the Liberal-National Government will continue its politics based on the denial of the seriousness of the threat posed by climate change, and shown by the reduction in the clean energy target, the abolishment of the carbon tax, etc.

More about the Copenhagen Consensus Center, the Danish equivalent of the Australan version and run by Dr.Lomborg, and the donors supporting it here:
http://desmogblog.com/2014/06/25/millions-behind-bjorn-lomborg-copenhagen-consensus-center

Australia’s climate change policy all talk and no action

Sunday, April 12th, 2015

See here:

http://www.theguardian.com/environment/2015/apr/10/australias-climate-change-debate-all-talk-and-no-action

Extracts:
“The government is refusing to accept a political compromise on the renewable energy target (backed by Labor, the renewables industry and big business) because it thinks the industry won’t be able to reach the target, but the only reason industry wouldn’t reach the target is the absence of a political compromise.”

The government will set a post-2020 emissions reduction target without a policy to get there.

“The government is not including climate change in long-term planning exercises that really should be planning for climate change.”

And not to forget: even the term “climate change” appears to be taboo in government papers. It has been replaced by a term which puts much less urgency on the problem: “climate variability”. All in line with the views of Tony Abbott and some of his ministers, who do not take climate change seriously (in Abbott’s word: “crap”).

Put a Prize on Carbon Now!

Tuesday, April 7th, 2015

Have a look at the article linked below.

Extract:

“An international team of scientists has tried a new approach to addressing the complex argument about the costs of climate change – and, once again, the prediction is that the costs of inaction will be so much greater than paying the bills now.

The researchers − from the UK, Switzerland and the US − conclude that policy-makers must apply the brakes and put a high price on carbon emissions “before it is too late”.”

http://www.eco-business.com/news/cut-carbon-now-to-avoid-climate-tipping-points/

The Destruction of Nature

Tuesday, April 7th, 2015

A friend sent me this very useful link:

Overpopulation, overconsumption in pictures

http://www.theguardian.com/global-development-professionals-network/gallery/2015/apr/01/over-population-over-consumption-in-pictures?CMP=fb_gu

This is where our present economic system has led us and which has to be stopped!

Compassion and cooperation, not selfishness is at the basis of human evolution, unfortunately missing in neoliberal economics as often practised

Monday, February 23rd, 2015

Lynn Margulis proposed a long time ago that cooperation is at the root of evolution even at the cellular level. That is, evolution is more than a selfish struggle between entities (the survival of the fittest). Indeed, cells of which we are composed, consist of components that were originally separate organisms but found it advantageous to live together supporting each other (in symbiosis). Her idea has been supported by much empirical evidence. Other authors have found evidence for the same principle at the levels of individuals and groups of individuals. Now P. A. Spikins and collaborators have found evidence that compassion with other individuals, cooperation between them, has evolved very early in human evolution, indeed – according to her – a sense of aesthetics and cooperation evolved before higher (human) intelligence and selfish behaviour had evolved. Neanderthal men which lived many thousands, and Australopithecines which lived millions of years ago and are our direct ancestors, apparently (indicated by fossil evidence) showed acts of kindness and cooperation.

See here for evidence:

https://www.york.ac.uk/media/archaeology/documents/staff/staffpersonalfiles/Compassion7.pdf

A summary of the research is given in a recent book:


http://www.amazon.com/How-Compassion-Made-Human-Archaeology/dp/1781593108

One should ask: what is the basis of the widespread assumption in neoliberal economics that if we all live and work with our selfish interest foremost in our minds, an “invisible hand” will lead to the best for everybody? The idea that selfishness is our main characteristic is simply foolish and contradicts evolutionary evidence. We are primarily social beings and our survival depends on compassion and cooperation with others.

Global Divestment Day

Saturday, February 14th, 2015

“According to a groundbreaking study released in January by the University College London, in order to prevent catastrophic climate change, 92 percent of U.S. coal, all Arctic oil and gas, and a majority of Canadian tar sands must stay “in the ground.”

See here:

http://www.commondreams.org/news/2015/01/07/groundbreaking-study-confirms-we-must-leave-fossil-fuels-ground

“Climate activists worldwide mobilized Friday for what they’re calling Global Divestment Day, which will see more than 400 actions and protests calling on top institutions to pull their financial support for coal, oil, and gas companies.”

See here:

http://www.commondreams.org/news/2015/02/13/global-divestment-day-kicks-call-clean-energy-future

Prime Minister Tony Abbott is wrong: coal is not the future!

The State of the Earth and the Reaction of France and the Western World to Terrorist Attacks

Sunday, January 18th, 2015

The West Antarctic Ice Sheet (about 2.2million cu.km, 10% of the total ice mass of Antarctica) has begun to collapse and may already have passed the point of no return. If all the ice in it will melt, sea levels will rise by about 4.6 m, and this may happen within the next few hundred years if greenhouse gas emissions continue to rise, flooding large coastal areas, coastal cities and even some cities far inland, such as Washington D.C. For details see here:

http://time.com/96173/antarctic-glacier-loss-is-unstoppable-study-says/

Overfishing, effects of climate change such as acidification, pollution particularly by plastics, etc., threaten the health of our oceans. Effects will be on the world’s food supply, air quality, climate stability, etc. The Global Oceans Commission has outlined a “rescue package” including a limit to gas and oil exploration, capping subsidies for commercial fishing, and creating MPAs, marine protected areas. For details see here:

http://www.commondreams.org/headline/2014/06/24-2

What is largely responsible for all the mess? Our present economic system, in other words neoliberal capitalism with its overexploitation and little consideration of environmental impacts. See here:

“That Was Easy: In Just 60 Years, Neoliberal Capitalism Has Nearly Broken Planet Earth”

http://www.commondreams.org/news/2015/01/16/was-easy-just-60-years-neoliberal-capitalism-has-nearly-broken-planet-earth

However, why worry about all this, humans apparently cannot wait and are trying to speed things up even more.

Consider the recent attacks by some Muslim fanatics on the French satirical magazine Charlie and the reaction of Western governments to it. It seems that the proper reaction of the French government would have been to play things down and not up. But it did exactly the opposite, it played things up thus demonstrating “strength” to the electorate (President Hollande’s ratings went up by about 15%!!) and demonstrated to potential terrorists how to successfully challenge the west. It seems that the reaction was exactly what the terrorists wanted. Things were made even worse by millions of copies of the magazine with a cartoon of Mohammed on the front page distributed in various languages, causing uproar among muslims in many if not all countries (see attacks in Niger, planned attacks in Belgium, and the reaction of governments of various Muslim countries). Even the Pope, in strong terms, objected to the obvious insults against the Prophet and indeed any religion. – We are seeing, it seems to me, an ever increasing disregard for the rights of others, of the future of mankind, all in the name of short-term gains for the few who own the riches, and the political class which is trying to hold on to power whatever the long-term costs.

Why the Trans-Pacific Partnership Agreement is a Pending Disaster

Thursday, January 8th, 2015

There are worrying trends towards an ever increasing concentration of economic and political power in the hands of a few. The negotiations about the Trans-Pacific Partnership Agreement (TPP) point in the same direction. Here are excerpts from a relevant article in Commondreams, January 7, 2015, by Robert Reich, one of the USA’s leading experts on the economy, Chancellor’s Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley, who has served in three US administrations. Time Magazine has named him one of the ten most effective cabinet secretaries of the last century.
Full article here: http://www.commondreams.org/views/2015/01/07/why-trans-pacific-partnership-agreement-pending-disaster

Why the Trans-Pacific Partnership Agreement is a Pending Disaster

“For three decades, free trade worked. It was a win-win-win.
But in more recent decades the choice has become far more complicated and the payoff from trade agreements more skewed to those at the top.

Tariffs are already low. Negotiations now involve such things as intellectual property, financial regulations, labor laws, and rules for health, safety, and the environment.

It’s no longer free trade versus protectionism. Big corporations and Wall Street want some of both.

They want more international protection when it comes to their intellectual property and other assets. So they’ve been seeking trade rules that secure and extend their patents, trademarks, and copyrights abroad, and protect their global franchise agreements, securities, and loans.

But they want less protection of consumers, workers, small investors, and the environment, because these interfere with their profits. So they’ve been seeking trade rules that allow them to override these protections.

Not surprisingly for a deal that’s been drafted mostly by corporate and Wall Street lobbyists, the TPP provides exactly this mix.

What’s been leaked about it so far reveals, for example, that the pharmaceutical industry gets stronger patent protections, delaying cheaper generic versions of drugs. That will be a good deal for Big Pharma but not necessarily for the inhabitants of developing nations who won’t get certain life-saving drugs at a cost they can afford.

The TPP also gives global corporations an international tribunal of private attorneys, outside any nation’s legal system, who can order compensation for any “unjust expropriation” of foreign assets.

Even better for global companies, the tribunal can order compensation for any lost profits found to result from a nation’s regulations. Philip Morris is using a similar provision against Uruguay (the provision appears in a bilateral trade treaty between Uruguay and Switzerland), claiming that Uruguay’s strong anti-smoking regulations unfairly diminish the company’s profits.

Anyone believing the TPP is good for Americans take note: The foreign subsidiaries of U.S.-based corporations could just as easily challenge any U.S. government regulation they claim unfairly diminishes their profits – say, a regulation protecting American consumers from unsafe products or unhealthy foods, investors from fraudulent securities or predatory lending, workers from unsafe working conditions, taxpayers from another bailout of Wall Street, or the environment from toxic emissions.

The administration says the trade deal will boost U.S. exports in the fast-growing Pacific basin where the United States faces growing economic competition from China. The TPP is part of Obama’s strategy to contain China’s economic and strategic prowess.

Fine. But the deal will also allow American corporations to outsource even more jobs abroad.

In other words, the TPP is a Trojan horse in a global race to the bottom, giving big corporations and Wall Street banks a way to eliminate any and all laws and regulations that get in the way of their profits.

At a time when corporate profits are at record highs and the real median wage is lower than it’s been in four decades, most Americans need protection – not from international trade but from the political power of large corporations and Wall Street.

The Trans Pacific Partnership is the wrong remedy to the wrong problem. Any way you look at it, it’s just plain wrong.