What is a collateralized debt obligation?

You might like to watch this 11-minute film, which is an illustrated example of lots of the terms that have been bandied around in the past couple of years, like collateralised debt obligations and credit-default swaps. It doesn't go into the politics of money or the way banks create money, but it does manage to make the technical stuff quite fun. Tweet

Where Scepticism Meets Denial

I have recently had two arguments with intelligent colleagues about whether we really need to act on carbon emissions. I think it would be fair to say that both my interlocuters have come to this discussion fairly recently and, interestingly, both consider themselves to be rationalists.

It has been my observation for a long time that people do not make up their minds on the basis of evidence and the climate change debate seems to bear this out. Martin Amis once joked 'I don't know much about science, but I know what I like', and it seems that many people do not like the implications climate change has for their way of life. As an economist I spend a lot of time with people who are part of the self-deluding and irrational paradigm that most threatens the balance of the planet: neoclassical economics. As I have blogged elsewhere, the environmental crisis requires us to reassess how rational we are as a species.

The media is not helping here.* The error in the IPCC report concerning the speed at which Himalayan glaciers were melting and a few indiscreet emails about unprofessional relationships sent by scientists at Britain's leading climate-change research centre have both been presented as major scandals casting doubt on the decision to take climate change seriously as a political issue. In an area where human survival is at stake this is, at best, irresponsible. It would be unsurprising if there were not errors in a report with such a massive number of data, and to imagine that academic scientists are wholly beyond reproach is naive in the extreme.

None the less these tiny grains of resistance to the tide of scientific evidence that climate change is happening, that it is accelerating and that the cause is human burning of fossil fuels are being grasped by those who are terrified of the prospects of being swept away by this tide and losing so much of what presently makes up their reality that their very sanity might be compromised.

I think in this context the use of the word 'denial' to describe such people is appropriate. My personal experience is that understanding this as a psychological response, a concern for psychological survival, and a fear of the sudden change that climate change threatens, helps me to find sympathy rather than respond with anger. It might also influence our ways of sharing the message of climate change: with clarity and certainty, but always also with solutions and a clear message about what we should do in response. This certainty about where we are going can help provide the psychological support that those in denial obviously need.

*Roger Harrabin has a two-part series called Uncertain Climate, taking a wider perspective on how the media deals with climate change. The first part is available for download as a podcast here. Tweet

No Respite from the Debt Hangover

So where were we before the media and the powerful generally conspired to deny that anything serious was happening for a month? Oh yes, we were in the middle of the biggest recession for a century. Now that those further from the spotlight have jetted back from warmer climes and baby Florence Rose Endellion is sleeping peacefully in her crib perhaps we can turn our attention back to this rather serious matter?

The tendency of every debate to fall into a dichotomy is a perennial irritation. In this case we now have the split between the cutters - neo-Thatcherite shock tacticians either born with silver spoons or made rich through the banking boom - and the post-Keynsian, New-Labour-cum-Old-Labour big state advocates, who are prone to use the ugly phrases 'double dip' and 'fiscal stimulus', both of which have sinister overtones of something unpleasant and sexual.

As usual, the green position trascends this dichotomy, and as usual it is not being heard. As I posted previously, our role as visionaries of a green future is to make clear that the economy has grown beyond the planetary boundary and so it needs to contract, but that this should be used as an opportunity to achieve the greater levels of equality that research indicates would make for a happier society. Elsewhere I have argued that we could frame this within the contraction-and-convergence that we use when thinking about climate change. Not an attractive slogan, I grant you, but it might just save the human race. Tweet

Intermission

The bank holiday is coming, the TV is packed with adverts for sofas and electronic gizmos, so it is time for me to engage in a little marketing of my own. First, I am proud to announce that Gaian Economics has been listed at no. 6 in the green blogs this year, one place ahead of George Monbiot. Not that I am competitive, of course, but it can be irritating that he is so endlessly the green talking head.

The Total Politics annual poll of political blogs is a bit of fluff that Ian Dale engages in each year, mainly to draw attention to his own blog, the quaintly named Ian Dale's Diary.

More significantly, at least from my point of view, I would like to draw your attention to my new website: greeneconomist.org. The idea is to draw in people who presently think a green economy just means shareholder-owned factories making wind turbines and set them onto the true path. There are also lots of my presentations that you are welcome to use and other resources for journalists, students and teachers. I hope you find something to enjoy. Tweet

Eat Your Greens not Your Shreddies

I share with Christopher Somerville, whose book Never Eat Shredded Wheat is published today, a recent interest in geography, a subject which we were both alienated from at school as a result of disastrous teaching. I am not sure that our reasons for revaluing the subject are the same, but I entirely sympathise with Somerville's intention to reacquaint us affectionately with our native land that seems both quaint and anachronistic in these days of Google Earth.

The book adopts a breezy, arm-waving tone which is probably inevitable when an author attempts to summarise a whole country's natural endowments in less than 200 pages, more than 20 pages of which are taken up with a pub quiz to make sure you were paying attention. This leads to some irritating generalisation and a few howlers, but I'm with the author in spirit.

My own interest in geography, and here I sense some further commonality with Mr Somerville, is twofold. First, I share his amazement at our ignorance of these native shores. As he explains:

'Geography helps me notice and appreciate what's around me, while I'm on the way to where I'm going. It puts a polish and a sparkle on thing. . . The British are lucky enough to live in just about the most diverse, compact, beautiful and endlessly fascinating set of islands in the world. To have the privilege of travelling them - which we endlessly do, for work and play - is to move through the world's best art gallery, nature reserve, library, concert hall and theatre - all for free.' (p. 3)

Rather more priggishly, I might suggest that, if we work a bit harder at embedding ourselves in our landscapes we might put a bit more effort into protecting them.

And then there is his idiosyncratic categorisation of England in 10 regions he seems to have chosen almost on a whim. I enjoyed this chapter, because it demonstrated a gleeful disregard for textbook geography or the statistical regions used by policy-makers. Combined with the chapter on the land's great rivers, it might provide a good starting-point for creating the bioregional map of the UK which could help us to plan a resilient and sustainable future. (See Australia's exercise along similar lines here).

The publisher's A4 sheet informs me that the author is based in Bristol, and he apparently hails from Dinder near Shepton Mallet, which may help to explain why, if he were facing in only one direction, the South-West appears especially neglected. None of its rivers are included in the chapter on 'watery bits', nor Plymouth amongst the country's great cities. Or perhaps his affection for the West Country has encouraged him to keep his own neck of the woods just a little bit private? Encouraging your countrymen to holiday at home is one thing, but seeing your own beautiful landscape overrun by the outcasts from the home counties might be too much to bear. Tweet

This is fun!

David Harvey explores and explains the financial crisis, with brilliant cartoons! Tweet

Topsy-Turvy: Turning that Well-Worn Graph on its Head

Here is one for the theorists amongst you - a longer and deliciously academic paper available on request. But for now just enjoy the sense of complete upset that could be caused to a neoclassical economist by the thought that, not only is there supply and demand model (see the figure) ridiculously simplistic, but both lines might actually be oriented in the opposite direction from those conventionally illustrated.



Such is the hypothesis of the German-New Zealand economist Stefan Arne Kesting, who argues that, not only might the directions of the two curves be reversed, but it might actually be possible to posit that an equilibrium is reached.

Conventionally (see the diagram) the supply curve is illustrated as upward sloping, since as the price of a good increases the producer is willing to supply more. However, Kesting points out that, 'Based on arguments of economies of scale and increasing returns by Alfred Marshall. . . marginal and average costs of production and prices are shown to decrease in some instances when output is extended.' This might suggest a supply curve that slopes downwards for a certain range of prices.

In the case of the demand curve, Kesting argues that Veblen's ideas about conspicuous consumption might cause this to be upward sloping. The conventionally downward sloping curve is based on the assumption that as goods increase in price people buy less of them. But if those goods are status goods, the higher price might increase demand (superior branded clothes might be an example).

Kesting argues that the two curves might again meet at an equilibrium point, although each is the mirror image of that suggested by orthodox economic theory.

The easy way in which the most basic apparently scientific formulation of neoclassical economy theory can be turned on its head in this way indicates clearly the vulnerability of the whole house of cards by which our complex global economy is justified. Tweet