8 July 2010

Don't Mention the Trade War

Have you ever noticed how your German friends can't pronounce the name of their own country correctly? No doubt grown tired of us correcting their pronunciation, according to Martin Wolf in the FT they have no made an alliance with China and actually become Chermany . I wish this were a joke, or some sort of economic chimera, because the reality of Germany and China turning inwards and offering only stern words to the rest of the world about our budget deficits is a very worrying development.

It is extraordinary how many politicians fail to understand that, in a globalised and interconnected world, running a surplus is just as destructive as running a deficit. It is only when national economies are in balance that all can thrive; large-scale imbalances lead to tension between countries and suffering and strife within them. This is not news: it was Keynes's understanding at the Bretton Woods conference, which is why he proposed a global trading system within which those with a surplus, as well as those with a deficit, were fined by a global regulatory body. At that time it was the US, flourishing as the purveyor of arms to the world, that resisted; now it is Chermany, which is vaunting its economic strength and ignoring the political consequences.

Martin Wolf draws attention to the problem of 'chronically weak aggregate demand'. This is the most frightening code-word that an economist can find: it means people aren't buying enough stuff. From the point of view of a capitalist economy that spells disaster. The shark has stopped moving through the water and will soon expire. The other code-word of note in his piece is 'protectionism', contrary to expectations one of the most threatening words in the economist's lexicon because it means less trade. In capitalist economics, without growth the economy will fail and the best way to achieve growth is to sell stuff to other countries.

The facile posture adopted by Dave and the Boy George at the G20 is almost as laughable as their suggestion of 40% cuts. We are, apparently, to grow our way out of the recession by exporting more. Leaving aside the understanding of readers of this blog that the planetary limit makes any further growth impossible I have two simple questions for the dining-club boys: what are we supposed to export (the demand for financial services having declined rather rapidly over the past two years), and who on earth is supposed to be buying?


  1. Hi Molly
    Good to see you at Glastonbury, sorry you had to fly away so noon.

    We do need to close our trade deficit somehow. Given that we have Europe's biggest wind and wave resource, we _could/should_ be exporting wave and wind technology. It's a pity that somehow, whether through stupidity or undue influence of nuclear or oil interests, over the past decades, our decision makers have managed to fail to develop those resources.

    ( I can never activate my Google account on these comment slots.)

  2. Long-time reader of this blog Molly and I want to say it is always insightful and often inspiring. Thanks.


    The plans are there for exporting our wave and wind resources. The third round of the selling of licences by the Crown Estate for development in the territorial waters has just been completed I am led to believe. This will see huge wind farms and wave turbines being constructed throughout the UK. One planned for the Irish Sea will have 1000 turbines alone! The global market is currently growing at around 30% in renewables and where there is growth government follows.

    The major issues, for those who concentrate only on economic impacts, are the resources needed to build these, especially the huge amounts of steel, deep water ports, the engineers (we simply don’t have enough!) and the need for improved grid and energy storage infrastructure. The renewables market has tipped - it’s not just the environmentalists anymore. The question is just how and how quickly. I don’t believe we can do it in the time frame needed. Just to replace the 4.5% year on year fall in oil production we need to be rebuilding the entire global infrastructure in renewables every year, not 30% growth, 100%. The end of abundance is here to stay I am afraid. So power-down ideas are the way forward in my opinion.

    Molly - I would like to ask however, as I am currently writing a paper on this, how does this growth fit in with the post-growth ideas you endorse, and to which I am inclined. What is the “but” to all of this hugely optimistic growth in the market for renewables. Is it that it only postpones the underlying fundamental deficiencies with our growth model for the next generation? I would love to hear your opinion.

    Student NI

  3. Umm:

    "The International Monetary Fund (IMF) has raised its forecast for global growth this year, from 4.2% to 4.6%. It said the world economy grew strongly in the first part of this year, mainly thanks to robust growth in Asia."

    Doesn't seem to be any shortage of global growth really.....

    "what are we supposed to export (the demand for financial services having declined rather rapidly over the past two years),"

    We're still the sixth largest manufacturer on the planet. One third of all jet engines for example, wings for the second largest manufacturer of jet planes.....

  4. I'm not sure who I'm replying to here, and it would be good to know - also I would like to see you paper once it is finished.

    Moving towards a green economy would, of course, mean a whole lot of stuff not getting done that currently is wasting energy and resources - call-centres persuading people to buy plastic crap being my first target.

    In terms of your question about the energy-impact of creating the low-carbon infrastructure, I think we need to use the earth's remaining supplies of petroleum for that purpose. And it needs to be balanced by radical contractions in many other sectors.

    This discussion would be aided by a having a measure of economic activity that was meaningful. At present when we talk about 'growth' we are talking about GDP, which is not a helpful measure, not distinguishing between goods and bads, or stocks and flows.

    I think this post on Energy Return on Energy Invested might help with your thinking, and perhaps your paper: http://ococarbon.wordpress.com/2010/05/19/eroei-of-electricity-generation/

    At present we are assessing the monetary return on investments; moving towards the energy return would help to reorient our economy.