Creating Economic Security

Engaging the World More CompassionatelyAmericInn Conference Center, Ashland, WI

April 3, 2008

JERRY HEMBD

Northern Center for Community and Economic Development

University of Wisconsin-SuperiorUniversity of Wisconsin-Extension

Outline

• Economic security and the White House

• Contemporary economic context or “markets are us”

• National notes

• The sustainability imperative

• Global notes and considerations

“ . . . the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back.”

John Maynard Keynes in The General Theory of Employment, Interest, and Money, 1936.

Positive Economics

What is(explanation and prediction)

Normative Economics

What should be(control and management)

Market Society

Social system in which economic life is dominated by a market economy (little or no

government “interference”) and motivated/driven by individual

self-interest

Command Economy

Market Economy

Central planning

Price system Institutions differ

The Economic Playing Field

• WHAT should be produced?• HOW should it be produced?• FOR WHOM should it be produced?• What provision should be made for GROWTH?

A Perfectly Competitive Market

• Many buyers and sellers

• A standardized (homogeneous) good or service

• No barriers to entry or exit

• Perfect information (about prices and availability of all resources and products)

• Firms and resources are freely mobile

• No external costs or benefits

Market Failure

• Imperfect competition• Public goods (nonexclusivity and

indivisibility)• Externalities• Imperfect information• Income distribution• Intergenerational considerations• Institutional failure

Underlying Considerations

• Supply and demand reflect wants and the response to them – and not needs

• Markets (when they work properly) produce efficient outcomes but they may not be equitable according to your sense of fairness

• Market failure brings up the question/issue of role of the government market intervention

A Social-Welfare Model for the U.S.?

• The U.S. does not have to accept continued high poverty as the price to pay for a vibrant market economy, since social insurance can be combined with a high-productivity market economy

• The U.S. does not have to choose between its own poor and the world’s poor. It can help both, at modest cost, and with budgetary funding sources that are easy to identify.

Source: Sachs, Jeffrey D. Common Wealth: Economics for a Crowded Planet. New York: The Penguin Press, 2008.

A Social-Welfare Model for the U.S.?

• The U.S. can learn from the success stories of social-welfare states to foster a greater degree of social harmony and confidence in public institutions

• The U.S. social insurance system is even more tattered than it looks, because of the increased variability of incomes and risks facing American households

• The costs of major corrections are small relative to U.S. national income

Source: Sachs, Jeffrey D. Common Wealth: Economics for a Crowded Planet. New York: The Penguin Press, 2008.

Confronting the Triple Crisis

Climate change

Peak oil(The End of the Era of Cheap Energy)

Global resource depletion(And species extinction)

Ehrlich-Holdren “IPAT” Equation

I = P * A * T

I = environmental impact of the economy

P = population growingA = average material standard of living growing rapidly (consumption)T = throughput (resource consumption, pollution, and ecosystem impacts) per unit of output technology term to compensate for P and A

Original Source: Ehrlich, P., and Holdren, J. 1971. “Impact of Population Growth.” Science 171: 1212-19.

World Population Since AD 1B

illi

on

Peo

ple

US Energy Consumption1635 - 2000

Qu

adri

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BT

U

Carbon Emissions from Fossil Fuel Burning, 1751-2004

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1751

1776

1801

1826

1851

1876

1901

1926

1951

1976

2001

Source: UN, BP, DOE, IEA

Mil

lio

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on

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Growth Trends Summary: 1950 to 2000

• Population more than 2X• Economy 7X• Food consumption 3X• Water use 3X• Energy use 4X

The Age of Oil

0

5

10

15

20

25

30

35

0 500 1000 1500 2000 2500

Year

Billions of barrels

Natural Capital (Ecosystem)

Manmade Capital (Economy)Source: Daly, Herman. Ecological Economics. Island Press, 2004

Finite Global Ecosystem

ECOSYSTEM GOODS AND SERVICE

Use valuesNonuse valuese.g. existence, species preservation,biodiversity, cultural heritage

Consumptive usee.g. harvesting, water supply (irrigation, drinking), genetic and medicinal resource

Nonconsumptive use

Directe.g. recreation (boat/swim),transportation, aesthetics, birdwatching

Indirecte.g. UVB production, habitat support, flood control, pollution control, erosion prevention

V A L U E S

The figure shows the multiple types of values from ecosystem goods and services that are considered within a total economic valuation (TEV) framework.

A Total Economic Valuation Framework

Four Challenges Posed by the Transition to Sustainability

• We need more accurate models, metaphors, and measures to describe the human enterprise relative to the biosphere.

• It will require a marked improvement and creativity in the arts of citizenship and governance.

• The public’s discretion will need to be informed through greatly improved education.

• It will require learning how to recognize and solve divergent problems, which is to say a higher level of spiritual awareness.Source: David Orr. The Last Refuge: Patriotism, Politics, and the Environment in an Age of Terror. Washington, DC: Island Press, 2004.

Security Perspectives

• Number of people who died in attacks on Twin Towers, 11 September 2001: 3,000Number of people who died of hunger on 11 September 2001: 24,000*

• Number of children killed by diarrhea on 11 September 2001: 6,020*

• Number of children killed by measles on 11 September 2001: 2,700*

• Number of malnourished children in developing countries: 149 million

• Number of people without access to safe drinking water: 1,100 million

• Number of people without access to adequate sanitation: 2,400 million

Note: *Assuming annual deaths were evenly spread across the yearSource: New Internationalist 2001

Security Perspectives

• Number of people living on less than $1 a day: 1,200 million• Number of African children under 15 living with HIV: 1.1

million• Number of children without access to basic education: 100

million• Number of illiterate adults: 875 million• Number of women who die each year in pregnancy and

childbirth: 515,000• Annual average number of people killed by drought and

famine 1972-1976: 73,606• Annual average number of children killed by conflict 1990-

2000: 200,000• Annual average number of children made homeless by conflict

1990-2000: 1.2 million

Source: New Internationalist 2001

Millennium Development Goals

• Goal 1. Eradicate extreme poverty and hunger.• Goal 2. Achieve universal primary education.• Goal 3. Promote gender equality and empower

women.• Goal 4. Reduce child mortality.• Goal 5. Improve maternal health.• Goal 6. Combat HIV/AIDS, malaria, and other

diseases.• Goal 7. Ensure environmental sustainability. • Goal 8. Develop a global partnership for

development.

Blessed Unrest

• There are one to two million independent, local citizens’ groups to devoted to environmental, social justice, and indigenous rights issues

• It has been labeled “The largest social movement in the history of the world”

• It is not an organized movement• It is a natural response to increasing

societal and ecological problems

Concluding Remarks

• We live and work in a market economy

• There is a role for the public sector in terms of market intervention – and we need to be engaged in shaping this role

• There is a role for civil society in terms of market intervention and human welfare – and we need to be engaged in moving this movement forward

Spheres of Concern and Influence

Sphere of concern

Sphere of influence

Some things have to be

believed to be seen.

Northern Center for Community and Economic Development

Jerry Hembd, Director

University of Wisconsin-SuperiorBelknap & Catlin, PO Box 2000Superior, Wisconsin 54880Phone: 715-394-8208Fax: 715-394-8592E-mail: jhembd@uwsuper.eduWebsite: http://www.uwsuper.edu/ncced