Hi Gar,
Thank you for the references to your articles on Gristmill. Those two
articles and your note provide a serious and useful elaboration of your views
on the distinction between what has to be done in industry (other than, as
you point out "agriculture and forestry, plus water and air transport") and
other fields of the economy, and for your views on pricing. I have just got
around to looking at your reply, and would like to make some comments.
However, I'm sure I will pondering your articles more later.
> To answer your minor point first. Once you have an emissions price for
> manufacturing it makes sense to have it everywhere. Too much leakage
> otherwise, and price will serve as reinforcement in other sectors. In
> short you spotted a key point.
I presume that the idea is the that carbon price would come either
through a carbon tax, or a modified cap and trade (with, say, auctioned
permits) or some similar scheme. This would be throughout the entire economy.
It seems strange, though, to impose the tremendous difficulties and problems
of carbon pricing, if it is just to deal with a small part of the emissions.
Indeed, according to your figures in "When did 'public' become a four-
letter word?", industry amounts to other 20-30% of the emissions. As you
say:
"The exceptions represent 20-30 percent of U.S. emissions: industries other
than agriculture and forestry, plus water and air transport."
Moreover, according to you article "How much should we spend to green the
U.S.? Public investment and regulation can be main means to green", the
majority of emissions even in industry could be dealt with by regulation. You
write:
"There are some areas where rule-based regulation of the type I described can
lead to improvements in industrial efficiency. For example since the majority
of industrial energy consumption is used to power industrial boilers, we
could set rules mandating a minimum ratio of heat delivered to heat input. We
could also mandate efficiency standards for pumps and motors which consume
most industrial electricity."
So in these articles, you make a powerful case for regulation, which is an
important thing to do. You then point to industry, and say even that the
majority of emissions comes from industrial boilers, which could be subject
to regulation. That leaves less than 10-15% of emissions at the most. And for
this minority of emissions that's left, well, even there you point out
various regulations that could be used.
So by these figures, it seems that, at most, only 5 to 10% of emissions would
be outside the regulations you envision. Even these emissions could be under
some sort of regulation, but it seems you think it would be too complex to do
this efficiently. And so you look to carbon pricing for these emissions,
which, however, has to be imposed on the whole economy.
This makes me think I may be missing something in your views. Your article
"When did 'public' become a four-letter word?" is subtilted "Regulation and
public investment are more efficient means to reduce GHGs than emissions
pricing". So its main point is to argue for regulation and public investment.
Yet isn't it a contradiction to say that regulation and public investment is
more efficient, and then also support carbon pricing, the less efficient
method, because you think it would be more efficient for a tiny fraction of
the emissions?
Well, part of the issue is that you think that carbon pricing, and pricing in
general, even if not as efficient as regulation in most situations, is still
helpful. But these systems won't simply provide some additional help, but
they also lead to fiascos of their own. For myself, I think it's no accident
that carbon pricing helped give rise to the biofuel catastrophe. Nor is it an
accident that the period of $4 a gallon gasoline pricing gave rise, in some
places, to cutting back on mass transit -- despite the increased demand for
it -- because the local governments went into financial crisis from gasoline
pricing and didn't have the money to even continue the existing mass transit.
Pricing will always give rise to unexpected consequences, when pricing is the
fundamental control or planning method. Unexpected consequences are a natural
result of pricing and markets, and are both one of their main sources of
motion and one of their main sources of tragedy. Pricing and markets without
unexpected consequences is beer without alcohol: one may regard root bear as
better or worse than beer, but surely it is something else entirely.
More generally, you set forward arguments in favor of pricing as a general
method of economic calculation, and as something indispensable in our modern
economy, and that will remain indispensable even under socialism. I, on the
contrary, think that the use of pricing as the fundamental planning method
means subjecting planning to the law of value under capitalism. Moreover, I
think that it pretty much means the same thing under socialism, even if the
pricing is expressed in labor-hours, or some other unit than dollars or
francs or roubles. And the law of value isn't a friend of the environment.
You refer to the calculation debate, saying
> When you question price, you seem to be taking the losing side in the
> calculation debate.
No doubt it is widely believed today, among market socialists as well as
outright capitalists, that prices won in the calculation debate. This is one
of the fundamental ideological bases of neo-liberalism, and it has penetrated
deeply into those seriously seeking reform and not just market flacks. But
let me raise one eensy, weensy problem:
When one calculates with prices, what exactly is it that one is calculating?
The fact is that the index problem or aggregation problem is theoretically
insoluble. It is impossible to find a natural, fully satisfactory way to
aggregate together the figures for fundamentally different categories. To be
sure, there are many ways to do this, but there is no way to decide which way
is best. There is even controversy over such a simple thing -- one would
think it is simple, but it really is quite complex -- as how to construct an
inflation index. All such indices are, by their nature, only approximate, and
they become less and less useful as one compares economies differing more and
more in time, or in structure, or even in price level.
You write:
> As to prices being a capitalist phenomena, I
> seem to remember Marx thinking a labor currency was a good example of a
> tool that would be useful in a socialist society.
You have a good memory: Marx *did* talk about the possible use of labor
certificates in an early stage of socialism. However, these labor
certificates (the labor currency, as you say), were not to be exchanged
between factories or used for planning the industrial economy. Marx
restricted their use to the distribution of consumer goods: workers would get
labor certificates in exchange for work, and use the labor certificates to
purchase various goods. But the labor certificates would *not* then
accumulate in stores, be exchanged with the factories for goods, be exchanged
by the factories for raw materials, etc.
With money and pricing, the money proceeds through a cycle, and finally gets
back to the factory which then pays the worker with it. Under Marx's idea of
socialism, the labor certificates ends its role when the worker cashs it in
for goods. The goods are produced through a separate planning system. And the
labor certificates appear again later when workers are paid (or pensioners
get their pension, etc.). This may seem startling, and indeed it is, because
Marx's idea of socialism involves a revolutionary change from the market.
But is it possible to conceive of economic planning without the prices? You
write:
> Now one thing about the calculation debate is that
> on many issues you can argue who won. Is a planned economy feasible?
> One side says that if planners use shadow prices it is quite feasible.
> Another says, no, you need to use market prices; accept no imitations.
> But what both sides agree on is that you have to use some form of
> pricing if you want to run an industrial society. Those who want to do
> without price are the undisputed losers of that debate.
Well, Kantorovich -- the father of shadow prices -- may have been a brilliant
mathematican, but as far as I know, shadow prices have only had a shadowy
existence in economy theorizing, rather than there being that much experience
with them in actual planning. Meanwhile, on the contrary, planning that takes
essential note of the material difference between different goods has a long
history in the last century. From the Soviet version of "material balances"
to the original idea behind Leontiev's "input-output methods", calculcations
were made that's simply couldn't be made using prices or shadow prices, any
more than you can replace vector calculations with measuring vectors by a
scalar (a single number). This is seen in the various attempts at overall
economic planning in the last century. To avoid misunderstanding, let me
state that the economies involved didn't do without prices, and some were
Western market economies. But insofar as they needed to have overall economic
planning, they had to also use planning methods that rubbed to an extent
against normal financial planning. This included both planning in various
state-capitalist countries, and even planning in some countries in Western
Europe after World War I. Indeed, war-time planning, when capitalist
countries need to ensure sufficient supplies of different goods in order to
be able to massacre their rivals on the battlefield, is another place when
shadow prices just wouldn't do.
As I see, environmental planning has to be overall economic planning, and
therefore -- based not on the theoretical conclusions of market
fundamentalist economists, patting themselves on the back for having won, to
their own satisfaction at least, the calculation debate, but on the actual
experience of economic planning for the last century -- it cannot be assured
by pricing, or shadow prices, or any market scheme. It must be based on a
system of material balances (albeit not necessarily implemented in the same
way as the Soviet Union did), and it must subordinate pricing to itself.
In regard to this, I wrote a series of articles on the issue that "the labor-
hour is not the natural unit of socialist calculation", and more generally,
on that there is no such natural unit of calculation. If you are interested
in seeing my elaboration of this point, look at the links at
www.communistvoice.org/00LaborHour.html.
By the way, in arguing this I did take account of the point you raise that
> Pricing is a tremendous computation saver."
At the end of part three of my article on the labor hour and socialist
planning (www.communistvoice.org/27cLaborHour3.html), I have a section
entitled "Approximate assessments" that points out that reducing things to a
single numerical scale may well be useful for certain things. It is fast, but
not exact. So, to oversimplify what I explain in that section, a huge mass of
minor decisions could be made with a simple numerical scale, but major
decisions would be made in a more accurate way. And these major decisions
would routinely be different from what would be decided if they were
calculated on a simple numerical scale.
Meanwhle, part two of the article goes into the issue of material planning
(www.communistvoice.org/26cLaborHour2.html), although from the theoretical
angle, rather than illustrating practically how such planning is carried out.
It explains how it requires material planning, rather than reducing things to
a single numerical indice (whether a price or the abstract labor-hour), to
take account of the material diversity of things, including the environmental
effects of production.
There's more that could be said about planning, but this has been a long
note. I wish to conclude by raising one further issue about planning.
The triumphalism over the calculcation debate is one of the the things behind
the idea that environmental consequences can be calculated through the use of
various financial indices, in particular, various elasticities (such as the
elasticity of energy use with respect to carbon price). You have a review of
this ("Short Literature Review: Energy Demand Own-Price Elasticity"), and you
point out a lot of the inadequacies of these calculations and make a number
of interesting points. You state that:
"In my view, elasticity values are best considered in qualitative terms or
as broad ranges."
Indeed, you end up wryly skeptical about various of these elasticity
calculations, saying:
"The broader point is that elasticity is not fixed in any case. The
reason elasticities vary across so many cross-sections is that they are
determined not by the energy form but by institutions. Availability of
information about alternatives is one determinant. Another is the propensity
of other priorities to out-compete energy considerations for attention.
" 'What is the price-elasticity of energy demand today?' will be an
important question whenever it is asked. But I think we need to add to it the
punch line of an old joke: 'What would you like it to be?' "
But many authors don't have this skepticism. They apparently believe that the
use of these elasticities allow them to make serious calculations that ignore
the need to see what material changes are going to take place in power
generation and manufacturing methods and agriculture, what discoveries will
take place, how the climate will actually change, what major changes will
take place in the economy, etc. Instead, all one has to do to see what going
to happen to the environment and the economy for decades or more into the
future, according to Prof. William Nordhaus, is to make spreadsheet
calculations with elasticities. This is one of the reasons that his book, "A
Question of Balance: Weighing the Options on Global Warming Policies", is
market fundamentalist lunacy. And it's perhaps not quite such an accident
that he ends up with an anti-environmental position.
I think that your review on elasticities provides a lot of information that
would help puncture the Nordhaus-type of spreadsheet nonsense, just as your
criticism of cap and trade and your discussion of regulation plans are also
valuable. But I think that a more thorough repudiation of pricing schemes,
and a recognition that there's life after prices, would provide the basis for
a more consistent struggle against neo-liberalism.
Well, I'm going to stop here for tonight.
Regards,
Joseph Green
Date sent: Sat, 14 Feb 2009 18:01:41 -0800
Subject: Re: [Pen-l] European carbon market crashing
From: Gar Lipow <[email protected]>
To: Progressive Economics <[email protected]>
Send reply to: Progressive Economics <[email protected]>
<mailto:[email protected]?subject=unsubscribe>
<mailto:[email protected]?subject=subscribe>
> Hi Joseph, I'm cutting what I'm replying to down to this, because it
> seems to be the key paragraph.
>
> > What it seems to come down to, is that you look toward price-driven or
> In market-driven system for emission control in manufacturing.You refer to
> real and shadow prices, depending on weather the system is capitalism, market-
> socialism (the system which would be socialism except that it's not), or
> socialism. I think this is the same type of belief in prices that leads other
> environmentalists to talk about establishing the "true price" of things. In
> my opinion, even if this is restricted to the manufacturing sector (and a
> system of prices might not make much sense if it is restricted to the
> manufacturing center), this caves in to neo-liberal illusions about the
> market. Prices are not really a rational system of planning: they are the
> agency for the law of value under capitalism, and shadow prices are a way of
> introducing the shadow of capitalism into any system they dominate.
>
> To answer your minor point first. Once you have an emissions price for
> manufacturing it makes sense to have it everywhere. Too much leakage
> otherwise, and price will serve as reinforcement in other sectors. In
> short you spotted a key point. Now I'll give you the reference you
> requested, but I also don't think these links address your point
> directly or in sufficient detail, so will provide a reply below.
>
> Here is a short post.
> http://gristmill.grist.org/story/2008/12/31/22430/356
>
> This is longer and more detailed, but the detail is mainly technology.
> http://gristmill.grist.org/story/2008/11/25/17212/723
>
> So now to answer your key question: why is manufacturing different?
>
> The answer is that manufacturing is diverse, but to get there we need
> to start with the other sectors. In most sectors you can plan via
> setting general requirements without having to decide the details, In
> regulating building efficiency, you don't have decide what to with
> this building over here and worry how it varies from that one over
> there. In regulating buildings you want to say something along the
> line of so many emissions per square foot, so many emissions per
> person (resident or full time employee equivalent) and building must
> main a minimum air quality and comfort level. The per square foot is
> avoid miserably small inefficient buildings. The per person is to
> avoid buildings with low emissions per square foot that waste huge
> amounts of space driving up emissions per person. And the air quality
> and comfort level rule is to avoid builders, landlords and operators
> complying with rule at the expense of human health and comfort. Now
> you also probably want public programs to use public investment to
> meet these requirements with known technology. But the rules don't
> specify how much of each means get used; nor they prohibit clever
> discoveries that mean requirements by some other method. But the
> former is more important than the latter. They are leaving to the
> people on the ground level, the people who would know, to determine
> the balance between efficient appliances and insulation and weather
> sealing, and heat pumps, and efficient lighting, and solar generation
> and what have you. So there is a good balance between central
> planning, and bottom up planning by those who have to actually
> implement the improvements. Top down planning sets standards. Bottom
> up planning determines how to implement those standards.
>
> And most economic sectors have a basis for striking this balance. In
> transport the top down can set rules for emissions per passenger and
> per freight ton. (We need to also do extensive public planning and
> investment in rail systems, bike and pedestrian paths and electric
> cars.) In electric power we can set standard of emissions per kWh, and
> public investment in transmission, storage, smart grids, and in wind
> and solar generation.
>
> But manufacturing, there is no good top down way to set standards.
> There are over 10,000 facilities covered under the EU ETS. Many of
> them are power plants. But thousands are industrial facilities. More
> important are the tens of thousands not covered under the current ETS.
> These facilities are in a multitude of industries. Each of those
> industries is in turn a multitude sub-industries. (For example, the
> paper industry includes pulp and paper. Paper includes newsprint,
> office paper, cardboard, many different grades and sizes for packaging
> (packaging including anything from packing paper to butcher paper, to
> wrapping paper for gifts and so.) All these sub-industries have
> differing ability to use recycled input. And the same thing is true
> for every type of metal, every type of plastic, every type of glass.
> And again it is not just raw materials. There are different ways of
> fabricating the same material for use as input in making various
> products. There are the factories that use these raw materials to
> actually make products, many of which are inputs to other products.
>
> Further, there are some products where the raw materials are a small
> fraction of environmental impact, where most impact is at actual
> fabrication. But for many others you reduce impact drastically, just
> by selecting raw materials that took fewer emissions to make. So
> while you don't have to set a standard for each facility, a planning
> driven process would require you setting standards for many thousands
> of different types of facility. If you wanted to actually set
> technology requirements rather efficiency standards, if you wanted to
> regulated on a per process basis than then you multiply your
> complexity even more. And I'm not even scratching the paint on the
> complexity of our industrial system. Pricing is a tremendous
> computation saver. I think someone calculated that to plan our
> industrial economy in detail without use of prices (or some other
> common factor to weigh everything against everything else along a
> single dimension) would require more computing power than can
> physically exist in the universe as we know it.
>
> And its not necessary. Even in a planned economy you could set a
> shadow price on emissions high enough that your planning process would
> automatically eliminate them. As to prices being a capitalist
> phenomena: I seem to remember Marx thinking a labor currency was a
> good example of a tool that would be useful in a socialist society.
> Now there are, in my opinion, serious flaws in the idea, but leaving
> those aside, a labor currency is definitely a way of using price in
> planning. For that matter capitalists did not invent pricing. Hell,
> paper currency was invented by the Chinese by 140 B.C. Ancient
> Sumer probably invented commodity money; at any rate their culture is
> the earliest we know used it. But finding some common basis on which
> to value disparate goods is probably something that comes about as
> soon as the number of people in frequent touch with each other arises
> beyond the number in a single village or troupe. I mean a lot of
> hunter gatherer cultures found reason to do this.
>
> When you question price, you seem to be taking the losing side in the
> calculation debate. Now one thing about the calculation debate is that
> on many issues you can argue who won. Is a planned economy feasible?
> One side says that if planners use shadow prices it is quite feasible.
> Another says, no, you need to use market prices; accept no imitations.
> But what both sides agree on is that you have to use some form of
> pricing if you want to run an industrial society. Those who want to do
> without price are the undisputed losers of that debate. If you find
> the term "price" too problematic, then think of it as a lowest common
> denominator. It is one thing to say that exchange value should not
> trump use value. It is another to say that exchange value is not an
> important component of use value in an industrial society. As soon as
> we have enough specialization that most of what we use is made by
> people we don't know personally, and most of what we produce is used
> by people we don't personally, (and that is true of most people) the
> only way to coordinate all this disparate production is to include
> pricing (maybe under another name) as part of the planning process.
> Alienation can be reduced, but it can't be eliminated in a production
> system of more than a certain complexity.
>
> Che Guevara made the point that if you want to eliminate exchange
> between socialist enterprises on the basis of commodity pricing that
> is all the more reason to keep track of costs. If, for good socialist
> reasons, you want to provide something at less than the cost of
> production then you damn well need to keep track of what that cost
> was: the cost doesn't disappear just because it is not passed along
> directly.
>
> An emissions price IS a shadow price. In manufacturing as far as I
> can tell it is the only means available for deciding how to reduce
> greenhouse gases. In all other sectors it still makes a useful
> reinforcement. If it would have to be used under non-market socialism
> it certainly has to be used under capitalism.
>
>
> On Fri, Feb 13, 2009 at 9:36 PM, <[email protected]> wrote:
> > Hi Gar,
. . . . . . ,.
_______________________________________________
pen-l mailing list
[email protected]
https://lists.csuchico.edu/mailman/listinfo/pen-l
