First of all, and I hope to make this more clear in a later post, I'm not talking about every major metropolitan area engaging in all the production needs of that area.  Actually, I think that the approximately correct size for a manufacturing system is a continental or subcontinental size, which is why in my post I was very concerned to talk about the economy of the United States, not, say New York City.  The question is one of economies of scale, that is, most industries have an optimal, or somewhat optimal, size.  So most auto production, at one time was in Detroit, for instance, for the entire country.  I wasn't arguing against that.

Now let's look at Europe, which has done the right thing and formed an economic union; or China, or India, and I think you would agree that Africa or the Middle East would also benefit from free trade within their respective region.

But also notice, in the Detroit example, or Silicon valley, or Wall Street, that industries benefit from having the various subsystems of those industries packed in closely together.  While Wall Street bankers might sing the praises of globalization, they prefer to be able to commute to work so that they can have face-to-face meetings with each other.  Why?  Because technological innovation thrives when this is possible.

This technological innovation also benefits the manufacturing sector when engineers can go to factories and "kick the tires", as it were, and talk to other engineers.  One thing economists have not been good at is explaining technological change, because they tend to ignore the entire engineering profession.  But proximity is important for technological innovation, as well as production.  There's a reason that economies, particularly strong manufacturing economies, are thought of as regional; that's because it makes sense economically.

Globalizing everything so that one area produces all of one particular commodity, like the Taiwanese with motherboards, if memory serves me, is bad for a number of reasons, and I'm not sure if you would support that, but let me explain.  First of all, it's very strange that mainstream economics is so pro-competition, but when it comes to globalization, all of a sudden it's ok if only one area is specializing.  In other words, just like other forms of competition, it's better if there are many centers of production and perhaps even more importantly,many centers of innovation.  I don't think the airplane industry is necessarily a good example, because I don't know how well it will survive peak oil, but it would not hurt if there were at least a handful of airplane manufacturers.

Now let's extend that to ball-bearings, or most other products.  If each region of the world -- say 10 regions, or 12, or what have you -- had their own ball-bearing center, that would be better than having one globally, for two reasons.

First, the gains from the interaction between the regional ball-bearing center and the rest of the regional industrial system would be greater, because the closer proximity would mean that interaction would be easier among the ball-bearing manufacturers as well as their customers.  And in addition to smoothing out bugs, secondly, such interaction would, again, lead to greater technological innovation than one global center.

The problem of shipping things all over the world is not trivial.  According to the major cargo shipping association, the carbon emissions from cargo ships is twice that of airplanes.  As oil becomes more and more expensive, all of these long supply lines will seem what they are, an artifact of ridiculously cheap oil.  You have argued that sprawl is not such a hot idea, why is global production sprawl such a great idea?

I'm not sure how to respond to the idea that we have a large trade deficit because people are willing to loan us money.  This seems to be an argument running all the way from Bernanke to the Cato Institute.  When Argentina had a huge trade deficit, nobody to my knowlege was making these sorts of excuses, which is what it seems to be.  If an economy, such as the U.S. economy, cannot sell as many goods to other countries as they can sell to us, then it doesn't take a lot of theory to understand that that is a problem.  The U.S. had a trade surplus with the rest of the world until the 1970s.  Does that mean that the U.S. was in worse shape then?

Which leads to another question, which you attempted to answer, which is that you can't trade for all of your goods by trading services.  The U.S. is imbalancing the entire global economy -- which Bernanke has also said.  As you suggested, all of the wonderful negative feedback loops of the market might kick in when the world finally decides not to lend us all of their surplus capital, but that's like saying the market will handle the situation if our car goes off a cliff, so don't bother turning the car.

Let me make general comment about protectionism and economic nationalism and all of that.  It seems that everytime somebody mentions keeping the manufacturing base of a country healthy, such a person gets puffed into a straw man who wants everyone to be poor (or deny the poor the opportunity to be rich) and die of thirst, as you claim.  I think that it can be argued, particularly in the face of resource constraints, peak oil, and global warming, not to mention global poverty, that it might be advantageous to discuss the mantras of free trade.  And the best way to do that, I argue, is not even to discuss free trade -- in my post, I didn't even mention the idea -- but to discuss how actual economies work, and the central role of manufacturing in them.

All countries that have managed to indusrialize, from the US to China, have pursued various governmental policies to encourage the construction of a manufacturing base.  And just because the US economy, for various reasons, is outsourcing its manufacturing base -- to catastrophic effect, I claim -- doesn't mean that we can't turn the ship around before it's too late.  And do it without worrying about breaking ideological taboos.

The main problem with this sort of argument is that it is propaganda to support specific economic interests.  Rather than look at actual history, to see who gains and who loses under a specific system, we launch into an abstract discussion.

Globalized trade takes place not because we think it is a great idea and we have democratically have chosen it.  It takes place because it is in the interest of powerful players.

Practical politicians know that abstract ideas about free trade are bunk. The most successful national strategy is that of the Asian Tigers (and before them, the United States and Britain): build up your nascent industries behind a protectionist wall. When they are strong, proclaim your belief in free trade and support your industries as they take over global markets.

The important thing is to see what one's interests are and pursue them intelligently.  Quasi-religious arguments from mainstream economists only cloud the mind.

If I were in charge of a little princedom, here is what I might do.

• As much as possible, isolate the community from the barrage of advertising and consumerist media. Perhaps like the Swiss, I would encourage the development of regional dialects that no one else can understand.
• Strengthen local traditions in food, clothing, housing - to promote local self-confidence and independence. Also, in time, tourists would discover the wonderful unspoiled culture, and bring in $$$.
• Encourage local farming and manufacture for most things. For specialized items and goods that would be much cheaper elsewhere, I'd look for the best deal on the global market. But my goal would be to build up the local infrastructure, rather than to be dependent on a continual stream of imports.
• If a geologist found oil deposits, I would swear him to secrecy and leave the oil in the ground. Later, as oil becomes very expensive, the treasure trove would be available to the princedom.

First, if firms close down operations because they are trying to break union's power or seek very low or repressed wages, then are we supposed to sanction such capital mobility and trade with such new operations simply because they are less expensive?

Conversely, if a country buys some inputs locally and imports others, but works its way up the value chain to import less and less, as Japan and China have done, then what is wrong with that? As developing country will want to do more of that.  The answer, however, is that there is something wrong if the nation doing more production lacks labor and environmental standards, relatively speaking.  Support these in China by all means, but realize the costs involved.  Don't forget either that low cost can be the other side of low health and safety, e.g. the work environment can be poor even if the costs are less.  Here you have a clear trade off between efficiency and environment.

Second, if a product is made with relatively sustainable energy sources and manufacturing procedures, there can be a more benign impact from its exports.  Yet, the transport of the goods, their use, and other factors can still use energy and promote climate change, etc.   Nevertheless, one has to look at the relative advantages of purchasing locally at a given scale as Jon Rynn suggests.  

Third, one has to put this in context.  Regions that are simply consumption envelopes, produce relatively nothing locally, and have no real advantages as producers of any service or product, might be simply be less justified on environmental grounds.  I am thinking of certain kinds of resort communities, gated communities, and the like.  One in theory wants to reduce the distance between work and residence.  This will necessitate some degree of local goods and services.  There is an employment gap for certain people, unemployed and underemployed, so there is room for more development even in the developed world.  If you think I am advocated some kind of Pol Pot scheme of determining where people live, that would be silly.  I am rather speaking about the incentives and subsidy the government provides to highway and automobile transit, the robbing of mass transit and the like.

Finally, there are some regions which are the byproduct of a crazy political economy in which they lack sufficient investment in sustainable infrastructure (which would provide local jobs) and are tied to a government created market that promotes their exports based on taxes.  The growth in the South and some regions are becoming relatively less sustainable given periodic droughts.  While they waste a lot of water, we have to realize that in the future mass migration might result fro a lack of water.  So, whether or not we like it, the environment may cause migrations anyway.  To the extent the automobile creates environmental disasters, we should reduce its use through various forms of localization.
For more related to this last point, see my article in Counterpunch:
http://www.counterpunch.org/feldman11012007.html
Note also, a recent article in the New York Times magazine about the drought, which brings up the specter of mass migration!

There is no better or worse when discussing a trade deficit or surplus, and a comparison with Argentina is really not helpful. There can be questions about the sustainability of specific patterns, but these things don't unwind in catastrophe. We have a balance of trade and payments; goods flows in one direction are balanced by capital flows in the other direction. Terms of trade change based on conditions in trading nations' economies, relative prices shift, and flows respond to those shifts. You see this happening right now. The dollar is depreciating. As a result, imported goods are a little more expensive and our exports are a bit more competitive, and our trade deficit has recently declined.

These are complicated issues, but the idea that we need to be manufacturing and exporting more, just so that we manufacture and export more, is an intellectual dead end. It's deadly for developing economies also. If China weren't able to produce for European and American markets, then it wouldn't be able to pull a fifth of the world's population out of dire poverty. If we're upset with their pollution, then we can solve that without cutting off trade and causing their economy to collapse.

Sprawl? Jon, population is already spread all over the world. There's not much we can do about that. The question isn't whether we produce everywhere or not, it's whether we trade or not. If we create a world of regional trade blocs, we just ensure that production is less efficient, not less dispersed. Also, how are you ignoring the fact that the US, with less than 5 percent of the world's population, is producing 20 percent of the world's manufacturing output? That figure has held roughly constant for over a decade. This is a catastrophic loss of manufacturing capability?

It's easy to get caught up in bad news, but from a historical perspective, the global economy is very healthy. Are there distributional issues here in the US? Sure, but we shouldn't address those by shutting down markets. On this point, I think you'll find wide agreement from economists and pundits across the ideological spectrum.

The issue is resource use, and our poor choices on that front have everything to do with underpricing of those resources. Economist Greg Mankiw (who leans right) has established a Pigou Club, which is based on the idea that the best way to solve these problems is to tax overuse. His club's membership is as wide as anyone might hope; it includes liberal heroes (my heroes) Al Gore and Paul Krugman, among many, many others. The point is that we shouldn't disable the market, but get it to work for us.

I completely respect your desire to improve the way we do things, but I believe your solutions are misguided. We have a great deal of empirical evidence showing that efforts to dictate production patterns end badly, and often disastrously. The market isn't magic, but it's a lot better than you or I saying make that here and make that over there.

Much of the market is already planned.

First, take a look at the history of the "Gunbelt" in the United States (see the book, "The Rise of the Gunbelt").  Military location was dictated by politics and somewhat by the attempts to gain access to cheap labor and land, but often by location in Congressional districts with powerful politicians.  The organization of military firms and the subsidies to military (and increasingly biotech) firms each are guided by federal R&D procurement and R&D choices.  This means that politics will influence location decisions.

Second, the highway system was subsidized by the state, helping to decentralize or scatter residences.

Third, if you really think the market works well, see the film, "Who Killed the Electric Car?" or "Walmart: The High Cost of Low Price."  The former shows the devastating policies of ill advised corporate planners and government regulators.  The latter how low prices help devastate communities and workers.

Fourth, the idea that a badly planned state is the alternative to free markets is really a straw man that we can easily dispense with.  I don't think Jon Rynn is talking about that.  The issue is rather that government and firms can both be badly or well planned. More on that later.

But "the market" doesn't address all problems, and fixing it isn't simple. Ryan brings up the particular case of pollution and CO2 emissions, which could lead to market-driven realignment through a carbon tax, "an extra amount to help pay for or forestall global warming".

But why don't we have that? We don't have a uniform world-wide regulatory environment to establish such a thing, and as soon as you have non-uniformity in pollution laws or labor laws or any other kind of progressive regulation, there's an automatic "race to the bottom" that drives production to those regions of the world with the loosest regulations.

We need a world with a level playing field, or barring that we need to impose trade barriers that attempt to compensate for, however poorly they may, the effect of that regulatory non-uniformity. The World Trade Commission is unfortunately not set up to allow that sort of thing - it can't establish uniform regulations, and it abolishes trade barriers. So the race to the bottom continues.

While we push for solutions to global warming and our energy issues, let's argue for those solutions that generate the lowest number of jobs per kWh, because those are the most cost-effective ones and will bring the most benefit to all.

I'd like to emphasize one additional point: if we don't buy things from poorer countries they will never be able to generate the foreign reserves to buy things like medicine, computers, refrigerators, etc. and they will be doomed to perpetual poverty. There is no way a small country could ever develop its own industries in all of these areas and without selling exports they are left in an underdeveloped capacity.

Keep up the good work....

Economic Illiteracy Harms The Planet! www.voicesofreason.info.

Let's ignore for the moment the large distortions that Jonathan Feldman points out in the comment above; perhaps you would agree that the military has warped many markets and parts of the country, and that the U.S. government's pro-sprawl policies are also an example of bad policy.  The deeper question, in my opinion, is the role of manufacturing, and whether we can say that a regional economy has some ideal form.  I think that ideally, a regional economy would be fairly self-contained, because I think that all of the different parts of the economy, and in particular the manufacturing economy, gain because of a set of positive feedback loops that exist among them.

You might agree, to some extent, that different parts of the economy consist of virtuous positive feedback loops, but that the proper size for an economy is global, not regional.  Frankly, the regional part is the hardest to argue, partly because not much work has been done on it (some work by people by Krugman, although I am not familiar with it).  I'm coming at it from an engineering/production perspective, mostly.  

It seems to me that the actual economic history of the planet shows that proximity in production is an important issue.  For instance, you say, "If China weren't able to produce for European and American markets, then it wouldn't be able to pull a fifth of the world's population out of dire poverty"; well, obviously, if they weren't able to manufacture the goods that they are trading, we wouldn't even be discussing China.  And how did they get to that point?  They invited companies to come in, and they trained their own engineers, and they insisted that the companies share their expertise with their home-grown engineers -- by the way, the USSR went through a similar process -- and they imposed huge tariffs -- as the US did at a similar stage of development -- and they had a centrally controlled economy, with the central government directing much of the development.  And, to top it off, -- and this part really blows my mind -- they control the exchange rate.  

Now, there is absolutely nothing in economy theory, as far as I know, that would justify the control the Chinese have over their exchange rate.  I was just reading an AP story quoting economists to the effect that the Chinese currency is about 40%-50% undervalued.  And the effect of this is to seriously damage much of US manufacturing.  And what are they doing with their surplus dollars?  Storing them away, as far as I can tell.  

In other words, it's not clear to me that China needs the US in order to expand.  that's certainly true for the Europeans and Japanese, with which we have about half of our trade deficit.  In fact, by underpricing our doemestic manufacturers, in the case of China, in the long-term they are going to hurt themselves, because at some point they will have to release their currency, and without a healthy manufacturing base the dollar will plummet, making us a worse trading partner for them.

Now, I know that talk of "regional trading blocks" scares people into visions of 1930s trade wars, and that's not what I'm talking about.  Imagine a world, again, with 10 or so trading blocks, each with a healthy manufacturing sector, which can each basically produce most of the panoply of goods and machinery.  It is my contention that such a global system would actually be much more stable for trade, because each region would be wealthy, and wealth is good for trade (I will talk about making this all sustainable in my next post or so, I hope).

So I'm not talking about specific industries to be created out of thin air by the government, although on occassion I think that should be part of the toolkit as well (the Japanese did so with the semiconductor-making machinery sector in the 1970s to spectacular results).  What I'm talking about is more of a stewardship level, and it just so happens that the need to revive the manufacturing base of the US coincides with a couple of other huge needs: the rebuilding of the infrastructure (e.g., minneapolis bridge collapse) and the need to transform the energy, transportation, and agricultural sectors -- and urban/suburban structure -- because of global warming and peak oil.  

It looks to me like a great fit -- we get a healthy manufacturing base, there's plenty of trade, we become sustainable -- and what's more, we deal with the big achilles heal of markets -- they're inability to deal with long-term problems, particularly with resource use, which we agree is a problem.  But I would add that in the United States, a big long-term problem that the market has dumped on us (with a generous hand from the government, particularly in constructing a military economy) is the weak nature of the manufacturing sector.

That manufacturing sector, by the way, does look to be in decent shape by a dollar measure, but what if the dollar declines rapidly?  Then we don't look so rosy and peachy.  But the sheer scale of the imports in the manufacturing sector should give us pause, as should the outsourcing, as should the growing crises in human capital, because who wants to go into a declining sector?

So I guess what I want to stress is this -- the manufacturing sector is not simply a substitutable part of the economy, like using timber instead of stone, or wheat instead of corn.  Even David Ricardo seemed to assume the production of goods within each nation.  If the financial sector was disappearing, I think there would be a different outlook on this.  Without manufacturing, no large region -- besides an occasional area, such as Bermuda -- can prosper.   In the case of environmental problems, and without dealing with exporting our pollution even, manufacturing gives us the wherewithal to construct a sustainable economy.  We cannot be just a service economy.  And if the market has gotten out of whack over the past few decades, and we need to go into the historical toolkit and bring it back up to a world-class level, then let's be practical and do it.

At one point, a country like China is going to develop a huge internal market, if it is able to have an equitable redistribution of wealth.  Federations of smaller states will similarly reproduce some scale economies.

As for smaller, developing nations needing exports, let us not forget that part of this pattern involved distortions (shrinking) of subsistence crops and problems associated with hunger for many of the masses, while native elites grew rich on the exports.  This was the pattern in Central America.

I don't believe in all of the arguments related to "self reliance" because there are advantages to trade, even in some regulated form.  There are so many ways in which really existing trade is regulated, however, that there are serious limits to the "freedom" in trade, e.g. protectionist measures.

  First of all, surpluses do not all automatically belong to the government.  The Chinese describe the local system as "market socialism".  Much of the surplus belongs to private companies and to foreign companies which are exporting from China.  We need to move away from the imagined monolithic China of old.

  So, the idea that the Chinese government is awash in unused wealth is misleading.  If the Chinese government just stopped exporting tomorrow, it would not be able to wave its hands and replace that export based economy with anything.  Economies (especially "free market" economies) are not so easy to move, nor can they be rebuilt or redirected over night.  For some reason, economists never seem to get this (at least those who write for the mainstream media, and some here (I am not directing this at Jason, who's current post I agree with (smile)).

  There is the same problem with the yuan.  Freeing it up would cause incredible disruptions to the local economy (well, in the long run, things would get better, but umm in the SHORT run, many people, real living breathing people would suffer), and the Chinese government wishes to protect its people.  Too bad the American government doesn't feel the same!!  

   (As near as I can tell, freeing the yuan would mainly benefit robber barons and currency speculators.  If it were freed, the US dollar might completely collapse, inflation in the US would spike, interest rates would soar, many would suffer.  But those who see the chance to enrich themselves are rarely bothered by the suffering of the poor.)

   As to the surpluses that do exist, China is having problems with excess investment.  In a free market economy, the government can't control investment (though it can direct some of it by preferential treatment), and the Chinese government is concerned with overheating the economy (which would worsen the immediate situation of the poor through inflation, as well as exacerbate resource problems).  

   Simplistic solutions to complex problems aren't very useful.  There is a big difference between pie-in-the-sky economics, and the real world, where getting it right should be approached carefully.

patrick in beijing

   BTW, believing in global trade does NOT meaning buying into the inequalities and problems in the current system.

   One of the useful things that people in developed countries can advocate is getting THEIR corporations to act differently in developing countries.

patrick in beijing

1. The reason China is rising is because of manufacturing.  No manufacturing, no wealthy China

2. If the U.S. manufacturing base declines and collapses, all of the bad scenarios you describe that would attend a falling US dollar will occur, doubled.

3. It is to both China's and the US's benefit if the US keeps a strong manufacturing base.

4. Perhaps you can educate me on why the Chinese central bank has 1 trillion dollars that they're getting nervous about if the Chinese government does not have a very major control over its currency.  But however that is, selling Chinese products for dollars -- not exchanging them for goods -- means that the workers and factories pumping out all of those goods that go to the US are only getting dollars in return, and if those dollars go down the tank because the US economy goes down the tank because the manufacturing sector is allowed to disintegrate because, well, the Market decries that it must be done, then lots of real flesh and blood people, both in the U.S. and China will be hurt, big-time.

Bart and Jonathan touched on this point already, but "efficiency" (a subjective category, according to Stiglitz, by the way, dependent on goals) should not be the main or only driving force as we negogiate our future with Mother Earth. We need new ways of looking at economies that foster sustainable, healthy and relatively equal communities. That's why it's important that we take seriously the pioneering work of people like Rynn and Philpott.

For example, I heard today on our local NPR station (KUOW) an interview with the founder of Great Harvest Bread Company. He was meeting with a farmer who grew local, organic wheat. Although the wheat was more expensive, he justifed his "illogical" business deal by the fact that he was forming a relationship with the farmer. That relationship went beyond money, which would be foreign to mainstream econommics. (Bill McKibben's "Deep Economy" touches on "happiness" and these sorts of these issues also.)

Put the other way, as long as Chinese carbon dioxide emissions are "free" it doesn't mater what we smaller(!) nations do.

The question should be how can communities meet more of their needs thus strengthen their economy through import substitution and increased local production (not to mention all the likely benefits in terms of emissions, etc . . .).

For rural communities in particular, figuring out how to better integrate their businesses and relevant sectors into the "regional economy" is equally important--so the defintion of local becomes highly relevant.

So in the same way that much of the global economy is shaped by rules (transnational, national, state) that influence/define trade, sub-national (states in the US) policy could better serve the interests of local and regional economies by promoting policies that help grow local economies.  

Respectfully submitted, I would not like to fly on a jumbo jet built in Hindman, KY or Abingdon, VA (or you name the place). When in either, I WOULD prefer to eat locally grown tomatos, sit on locally produced furniture and flip a light swtich that runs on the locally owned cogeneration plant.

Small shifts in state policy that enable local production and market integration would make a major difference in distressed rural places acorss the US.  

Specialization, division of labor, mass production...  or buy local.  A large portion of goods and services can be produced locally and regionally without going back to the stone age.  With every cave man carving his own wheel.

The real choice?  Ship all our scrap to China to be turned into shoddy, dangerous products by prison and slave labor so we can save money at walmart.  Big SAVINGS!!  But no jobs.  Whoops.

A shoddy intellectual product Ryan, do you work for walmart?  Are you typing from a prison labor camp?

http://amazngdrx.blogharbor.com/blog John Schneider, Northern Wisconsin

A shoddy intellectual product Ryan, do you work for Walmart?  Are you typing from a prison labor camp?

Dr. X, can we please keep the discussion civil?

These are only my personal opinions.

Eventually not only will one local region suffer the impact of overreaching its resource base but the entire planet will encounter a reckoning with limits.  Our experiment running counter to billions of years of evolution, divergence, diversity and adaptation will be ulimately undone by exemptionalist organizing philosophies including the unending growth paradigm of capitalism.  

1. the idea that it is actually attractive to the world's population

2. that even if it is not attractive it can somehow be enforced

I hope we can play the role model constructively, but at some point we will face the problem of free will.  What do you do if someone, somewhere, wants a product from China?  Even if you, an isolated environmental extremist wanted to, do you really think you could ever get that global mandate?

I think not, which I why I think the environmental pitch should be built up from pragmatic bits and pieces, and real engineering.  I don't think it should be built from shallow stereotypes:  "trade bad", "suburbs bad", "personal transportation bad."  Yes those things can be bad, but they also can be done better.

Not sure where you get the idea that localization is going to be mandated.  By whom or what?  Globalization is the centripetal force on earth now, not the pull of local communities.  Do you get the "with us or against us" message coming out of the local communities?  

If localization is not a choice then what other choice to people have than to adapt to the pull of the global flag?  

(Note that some stores are evil for important an equivalent share of their goods as Trader Joe's, while TJ tends not to be a target.)

There are better-practices (though the accounting for 'best' practices are difficult).

In my opinion though, the "shallow" visions with 100 or 200 mile boundraies are not it.  They can easily rope in the bad as the good.

And to show how much this is about contagious ideas rather than good theory ... consider how few 100 mile advocates can actually describe the math that favors that number, or that plan, over any other.

X mile diets, or X mile consumption, sell because they are easy to say.  On the other hand, the market works on the assumption that costs are embedded in price.  When externalities are included, that certainly works.

The real problem we've had is that externalities not included.

(I assume typos in the previous could be untangled by the reader.)

If global warming is the first major problem in world history that can be solved wherein the role of the government is simply to manipulate taxes, then mazel tov (sorry, I'm watching fiddler on the roof), but I hope people have at least thought this through.

I'll answer for you.  It is priced by nature at a level that forces us to shepherd it very carefully.  Same with Kopi Luwak coffee, etc., etc.

The question is a societal one.  Are we willing to artificially price carbon high enough that people will shepherd carefully?

Maybe not, but I think we'll get a lot more immediate progress by changing the carbon equation for everybody, than by attracting a few dozen people world-wide to a dedicated 100-mile lifestyle.

I mean, didn't basically everyone (who didn't have a book deal based on their diet) break down in less than 12  months?

The believers simply repeat the dogma, the followers say "Amen!" and the non-believers shake their heads. It's like trying to argue with the people who come to your door with bundles of pamphlets. They can be very nice people and one can agree with some of their ideas, but the possibility of communication is limited.

Taboo subjects:

• Conflicts of interest
• Real-world history
• Other economic schools  
• The evolution of socio-economic systems
• The voices of the non-elite
• Values other than those posited by mainstream economics (e.g. community)

That's the question economists, and we outsiders, face as we discuss 'interesting' questions.

It is certainly true, observable in the real world, that stiff taxes can limit consumption.  One reason Denmark has the highest bike ridership in the world is that they support bikes.  Another is that they put stiff fees on cars.  (When I was a kid the tax on an imported car in Denmark was 100%.  Not sure if that is still true, but I'm sure you can picture how it influenced the decision then, of car-or-bike.)

So I'm confuse Bart, are you saying that there is no point in pursuing, through trial and error, the right kind of incentives in the market?

.... because economists are sometimes "bad?"

(When I comment there I usually do so against the common libertarian slant.  Not because libertarian theory is weak, but just because it has limited application in a world with so many unrecognized externalities.)

       The money in a bank does not all belong to the bank.  Most of it belongs to depositors.  The bank needs to decide how to responsibly invest it.  In the case of China, there are already large inflows for capital from other countries (which come because the companies in those other countries believe they can make money).  

       If Chinese banks took their current account deposits and added them to the capital inflows, they would dangerously overheat their economy.  This would not benefit the Chinese people.

       And since the money doesn't "belong" to the banks, it can't just be spent any old way they want (such as on schools).  It must be spent in ways that return a profit.

       So, it is important not to confuse current account surpluses in Chinese banks with money that the Chinese government can spend any old way it wants.

       Certainly the road towards development seems to be through manufacturing.  But many economists in the developing world (at least those whom i see in print) seem to believe that this is a transitory road, one which leads towards a more service oriented economy as wealth accumulates.  Thus, the US model.

       I am not sure anyone has a realistic handle on what happens when the world begins to balance out wealth among nations.

       There seem to me to be two problems (or at least I will divide them into two for the moment).  One is the wealth gap between rich and poor nations.  This is beginning to be addressed by the development not only of China, but of a number of other nations.  Though, slower than many would like, there definitely seems to be signs of movement.

      This will raise new issues as the wealth centers are not long only the current developed nations (which presumably will not sink into total poverty?).  From my perspective, a certain amount of the xenophobia now directed (primarily at China, though China is hardly the only nation developing, just the current leader of the pack) comes from having to accept the former "lowly" as co-equal (if not there yet, the trend seems at this time to certainly be in that direction).

      This new "co-equality" makes many people uncomfortable, which leads to that certain amount of xenophobia we see.

      (Frankly, when I was in the US last summer, I was amazed at the constant drumbeat of anti-Chinese articles in the US newspapers I saw, and the total absence of balanced coverage.  Much worse than I expected.)

      So, there is a "learning to adjust" period coming up for the people of the developed nations.  I am not sure how it play out.

      I will ignore xenophobic among you (smile).

      The second issue, which is what Jon is really addressing is the gap between the rich and poor internally in nations.  No one is doing a great job of dealing with this right now.

      Yet, it will be the other elephant in the room.

      And it must be addressed.

      For one thing, since most of the wealth is concentrated in a few hands, it will have to be the wealthy who pay and adjust to deal with American Sponsored Global Warming.  You can squeeze and cut the poor to death with very little impact.  

      But if the poor are to gain weight, two things must occur (economic weight meant here).

      The rich have to give up some of it, and we have to learn how to do it in a sustainable way.  The money to invest in this must come from the rich.  No one else has it.

To all,

       Let me pose another part of this issue.

       Some of what Jon is proposing (with good intentions, though I don't agree with his analysis), would require a massive restructuring of the current US economy (which has moved towards a service based economy).

       Look at your own communities.  How many factories can you build?  Where will you put?  What open spaces will you sacrifice?  How much more transportation can you provide?  Housing for thousands of new workers?

       If the economy retreats from service to manufacturing, what happens to all of those "services"?  Are they really unneeded and unwanted?  Will local gadgets be cheap, but nursing homes be prohibitive?

       It seems to me that industry is not going to do this.  They have been there, and gone.  So it would require major government investment.  If the government can somehow find the money (and so far, it has been unable to rebuild New Orleans), how would it proceed?

       One of the problems I have with this vision is that I don't see how it would happen.

       What I can envision is a massive "green" rebuilding program structured in a way that people who are currently long term unemployed get the jobs (this will require affirmative action programs on a large scale, since otherwise the racism of those hiring will lock those we mean to target out of the jobs).

       That would create a newer US manufacturing base.

       Recovering the old seems unlikely to me.

       It would require more change than most people are willing to accept (at least in my mind) (and I am talking about the US here) (smile).

patrick in Beijing

Figure 1: [...] Bicycling Shares of Urban Travel in North America and Europe, 1995

1. Netherlands 28%
   
2. Denmark 20%
   
3. Germany 12%
   
4. Sweden 10%
   
5. Switzerland 10%
   
6. Austria 9%

But my second google!

"Currently, Dutch drivers pay a 25% sales tax on new cars, a vehicle tax based on the price and weight of the car, plus a road tax based on the weight of the vehicle and the type of fuel used."

Pretty un-American, isn't it?

More over there on a proposed pay-as-you-go replacement.

Where mainstream economics is best seems to be in limited domains -- the effects of taxes on bicycle vs car use in Denmark, for example. Or studying specific markets.

It's when mainstream economics tries to speak more generally that its shortcomings show. For example, when free market economists sought to re-make the Russian economy in the 90s:

After the disintegration of the USSR, the Russian economy went through a crisis, far worse than the Great Depression.[54][55] The dismantling of the planned economy towards a market based one resulted in the economy being shattered, with tens of millions plunging into poverty and a severe fall in the standard of living, and triggered an explosion in corruption and organised crime.
- Wikipedia on Russia

Or in this discussion, a superficial treatment of the localization question. It's not that what mainstream economics says that is necessarily wrong; it's that it doesn't recognize its own limitations and is reluctant to admit other ways of thinking.

I've found that the best thinkers are often refugees from dogmatic worldviews.  People who have left Libertarianism or Marxism or Catholicism, for example, have experienced the exhilaration of an all-encompassing system of thought and yet are very aware of the pitfalls.

Bart
Energy Bulletin

Maybe we agree that the framework is good, when you really use it honestly.  When you use just part of the framework, to prove some point ... that's like any other selective truth-telling.

Odograph, you are not a true believer if you are proposing taxes to limit consumption or if you persist in talking about externalities!

Why do people keep characterizing economics as ignorring externalities? The concept and the term was first coined by economists (Alfred Marshall and Arthur Cecil Pigou), for cripes sake! And who measures externalities? Economists!

These are only my personal opinions.

That is, there is zero difference between producing something in Spokane and shipping it to Seattle and producing it in China.

Transportation is done efficiency and make the best use of the most efficient producer.

And, while that may sometimes lead to a "single point of failure" -- we have been able to adapt in the times of crises and either change materials, or create a second locus for production.

The most wasteful policy is mandating something be within range "by miles" as determined by what a horse and cart could move to market in, say, the 1800s.

He also introduced the concept of short-term price, that is, the price that is determined by what goods are on the shelves, for instance; medium-term price, that is the price that can change according to how much production can be changed in the factories as presently constituted, and secular price changes, that is, what happens when technology changes.  I thought that was a beautiful way of showing how prices change, in prose, linked to the real world.  Unfortunately, the focus has moved away from being based on production.

The problem, Ron, is not that some of us might caricature economists, the problem is that politicians on the right use the caricature to argue forcefully against any rational use of government.  They are the ones who need to be educated, or stopped; but then, the Democrats on their left must understand that there is more to economics than "the market is perfect".

But again, I stress: Marshall was not advocating governments trying to create clustering, but merely observing it as an interesting, organic phenomenon. Governments can, of course, create clusters of certain industries through public procurement, especially for the military. But they cannot, and should not, try to create them for other industries. If it is the efficient way to organize manufacturing and services, it will happen on its own -- just as it happened in the days of Marshall, without government "help".

These are only my personal opinions.

Half of the US trade deficit in goods comes from Europe and Japan, not China.  The Europeans -- particularly Germans -- and Japanese are very wealthy, and while there is some leakage of their manufacturing to lower wage countries, manufacturing continues to be the basis of their wealth, it seems to me.

Another side of the Chinese surplus with the US are the low wages of the workers.  Now, some of that reflects the lower productivity, but the Chinese government could encourage higher wages, even in foreign invested companies, by allowing for union organizing.  I realize that that is a very touchy subject, so I'll just leave it there, but the problem is to increase the domestic demand, which I understand is rising as wages go up.

Something that I had not really considered was the idea that much of the surplus may actually be going to the likes of Walmart, since much of the trade surplus with the US is intra-company trade, and I thank you for educating me on the subject.

Another issue which you touch on is the everpresent problem of xenophobia in the US.  I believe the Bush administration was getting ready to make China to Bad Other when 9/11 happened, which is one reason they weren't paying attention.  I don't anti-Chinese sentiment playing out very deeply -- all the recalled toys, etc. hasn't really made a big difference.  But if the US living standards fall because manufacturing is falling, an anger toward China will likely rise, which is another reason that rebuilding manufacturing in the US would be a good idea.

You also wonder how all this reindustrialization is going to take place.  Since I don't have my own think tank, I can't be particularly specific, but I think the first step is to discuss how to do it, and there is certainly plenty of work that needs to be done that isn't being done, such as infrastructure repair and renewable energy.  As to whether this is politically feasible, my "localism" post was part of a series I started by bringing up the term utopian realism, which makes my manufacturing post seem moderate.  Again, as the Chinese proverb goes, you begin a long journey with small steps.

I think the same idea may be a good one for governmental stewardship of the economy.  I'm proposing that we need to reintroduce the equivalent of "wolves", that is, high-skill manufacturing, because to let the current trends run their course would be disastrous.

Before I got worried about global warming or peak oil, I (and some others, such as Jonathan Feldman, who has commented above), worked with the late Professor Seymour Melman on the formulation that in order to rebuild the economy we need to rebuild the manufacturing base, and in order to rebuild the manufacturing base we need to rebuild the infrastructure.  The infrastructure, most would agree, needs to be run by governments (at all levels), and so would be a natural way to be a steward while not getting too involved in the economy.

Now, with ecological problems rearing their ugly head, we can extend the needs from infrastructure as the word is commonly used to infrastructure in a more encompassing sense, such as simply building millions of solar energy or wind systems with government help.  Again, it's like a national park; we could have let "nature" take its course, but there is a crisis now, and so we need to move with all deliberate speed.

To get to some points odograph made as well, it occurs to me that while carbon taxes/cap-and-auction may do the job, at least partially, it's prudent to understand that massive governmental intervention into an economy is actually more conventional than relying on carbon taxes, which have never been tried (if you consider the european gas tax a carbon tax, you also have to consider that a more walkable/bikable urban system was in place before the taxes were started).  So it is actually the carbon tax idea which is more "radical" than governmental intervenetion, which has a long record -- yes, much of it bad, just like markets, but much to be learned from as well.

If we accept that we do not have a pure system, but instead a mixed and flawed economy (especially on the global scale), I think we have to accept that motion will be experimental and iterative.

People will try stuff (in commerce or government) and those ideas will spread.  Sometimes that's good (compact fluorescent bulbs) and sometimes its bad (corn ethanol), but it evolves.  No one gets to sit in their PJs one fine Saturday and design a new global system.

(I imagine a variation of Pinky and The Brain, where each week they design a new sustainable world.)

Design is good, actually, but I think it has to work incrementally.  It should work with entrepreneurs at Fast Company, and it should work with educators in Africa.

Why do people keep characterizing economics as ignoring externalities? The concept and the term were first coined by economists

Do you say this is an over-simplification? Look at how the arguments from the economists were used during the last century by business interests.

The impetus to start paying more attention to externalities didn't come from within economics. It's due to pressures from without, such as the environmental movement.

BTW, it's not mainstream economics alone, but also traditional Marxist economics that "wished it out in the cornfield."  They don't have a much better record (though Marx himself probably was more ecologically aware than the stereotype).

Jon Rynn writes:

I've been thinking of comparing the role of government in the economy with the role of a national park administration in a national park.

It seems that in your posts, you are very good at developing rational, reasonable proposal ( = I agree with them).  The weak point is explaining how they would come about.  Considering the fierce competition of interests, how would one mobilize the political forces to enact such proposals and make sure they are properly carried out?

Bart
Energy Bulletin

Now, I'm not sure if you have objections to using government to solve these problems.  As far as that is concerned, both the European Union and the US constitution stress the idea that whenever possible, in a large region, the most local jurisdiction should have precedence.  In other words, the more local, politically, the better.

On the other hand, if you're talking about how to organize a political movement to get these things done, the logic of what I'm saying, I think, leads  me to think that what we need ultimately, is some sort of global movement -- something that the peak oil community might be further ahead on than the environmental community.  Then there is Paul Hawken's idea of an unnamed global movement that is not consciously integrated.  

So, to put the two together, a movement that extends from the local to the global would have to have such clout as to be able to elect legislators that would enact the various "visions" that are developed.  That's certainly utopian again, although I think there are pieces of it here and there.  Sites like energybulletin.net, along with other parts of the blogosphere (grist?), for instance, could be considered part of an emerging global media.  

Ultimately, the Ben Franklins and Thomas Jeffersons understood that a democracy depends on an educated public.  No government, no matter how perfect, can survive without an informed public.  So hopefully all this will  help us get there.

   Governments in all developing countries operate under constraints imposed by those who bring the capital (and therefore the jobs).  If Americans really care about the wages of Chinese or other developing country workers (and there is no sign that they do!), they should require American corporations to set wage standards that are HIGHER than required by local governments along with the mechanisms to see that they are enforced!

    NO government wants its workers to be impoverished if there are alternatives. (Okay, maybe the US).  But in a global marketplace, capital can pit country against country, just as it pits city against city in the US.  If the US can't control its own corporations, how can anyone expect developing countries (which need the jobs) to do so?

    In fact, wages are rising in China, and there are worker shortages in some areas.  So much so, that some companies are moving into Western China (the government having bolstered the transportation infrastructure), but some are also leaving for Vietnam (cheaper labor).

    As far as unions go, do you all really believe that people are "free" to join unions in the US?  Ever try to organize one?  (I have, oh the tales...)

    The issue for workers is who speaks for them and looks out for their rights.  What kind of organization does so will vary from place to place and time to time in a country's life cycle.  Demanding that US models of any be copied by any developing country is a kind of imperialism.  Want to help?  

    Make US corporations behave better abroad.

    Stop exporting garbage that is only garbage (paper is allowed (smile) and perhaps other things, but not medical waste!).

    BTW, I do not speak for the whole developing world, just for me!!  I do see discussions by some economists that suggest that they believe the US is in a post manufacturing stage, and has evolved into a service economy, which would be everyone's eventual goal...

    Jon, I prefer the idea of "new" industrialization, of having the US be the incubator of new tech, which can then be sold to help other countries develop (while enriching the US).  This is not really building locally, since the markets would be worldwide.

    And I whole heartedly agree with you on the need to rebuild American infrastructure.  But that is not "local" manufacturing either, though it could create many new jobs.  (And again, there must be a fight for real affirmative action with teeth!)

    Ummm, what is "Pinky and the Brain"??  I did finally see some SquareBob SpongePants (and culture is definitely being exported from the US all over, which puts money in the hands of companies like Disney!).

patrick in beiing

First, and this might seem utopian as well, one of the advantages of employee-ownership-and-control (workplace democracy) is that the people who are lobbying, at least at a local level, are also the people who live there, so there is no (or less) conflict between the public good and what's good for business.

Second, just as ecosystems exist in a hierarchy from global down to, say, a watershed, so political systems would ideally reflect that biological reality.  The issues that affect the global level -- climate, for instance, or perhaps the oceans -- should be dealt with at a global level.  For a major metropolitan area, which hopefully coincides with an ecosystem (ecotopian bioregion type thing), we would have what is now considered a state government, or an extended city government, down to even a neighborhood level (advocated by David Morris, many years ago).  So the idea of a monolithic "government" is as unhelpful as one "global" market.

Third, the advantage of a bioregion with a well-functioning government, with a local economy that, in an emergency, could support the population comfortably for a period of time, would be the problem that as the climate becomes more unstable, local regions will need to be able to be self-sustaining, at least for short periods of time.

Is the argument between who want all these arguments to remain qualitative?