“The struggle between incumbency elites and those who see the need for change will be the defining struggle of our times”

Such a great intro to a speech:

Business as usual died in 2008. Publics understand that. Elites, on the whole, do not. In Britain, our economy is now almost one sixth smaller than economists were saying five years ago it was going to be by now.

Young people in my country understand that they are the first generation for over 300 years since the beginning of the industrial revolution who, as they look at their future, see a prospect that might well be worse than the one their parents contemplated a generation ago. Progress – the betterment of our lives from one generation to the next – is no longer something we can afford to take for granted. People know that something has gone seriously wrong.

We need a new growth model that is less vulnerable to shocks; that rebalances from excessive debt and casino finance towards the creation of value in the real economy; and that greatly reduces the stress that a growing and increasingly affluent population puts on the resource base including the climate.

This is not a minor adjustment. It demands a substantial redesign of the economy and of the system of power relations that underpins the economy. That is the heart of the matter because the forces of incumbency will always start from the strongest position and they will always fight reform.

That is not how things look to many elites around the world. Some profit too much from the old system to countenance the thought of anything different. Others are imprisoned within an economic theory that under current conditions has lost its power to make useful predictions.

The struggle between incumbency elites and those who see the need for change will be the defining struggle of our times. It will demand a monumental effort to build a new consensus between those who govern and those who are governed; between the over 40s and the under 30s; between those who said “trust us” and those who are no longer willing to take it on trust that elites must know what they are doing, and that they are doing it for the best.

(That’s recently retired UK Foreign Office Special Representative on Climate Change John Ashton, pulling no punches. H/t Casper TK.)

Banks screwing with price discovery mechanisms: water’s next

Frederick Kaufman in the current edition of Nature:

Making money come out of the tap means that fresh water must be given a price anywhere it is traded — a global price that can be arbitraged across the continents. Those in Mumbai or midtown Manhattan who understand the increasing value of water in the world economy will speculate on this undervalued ‘asset’, and their investments will drive up the cost everywhere. A water calamity in China or India — and the food inflation, political instability and humanitarian crisis that will surely follow — will reverberate in price spikes from London to Sydney. This is how bankers will profit.

Economists have begun to model a global water-based futures market featuring financial puts, calls, shorts, longs, exchange-traded funds, indices of indices, options piled on top of options, and all sorts of opportunity for over-the-counter swaps. Flood-insurance companies will certainly want to buy stakes that could mitigate their financial risk. In fact, every corporation that conducts its business in a flood plain, anywhere, would probably participate. Farmers will want to hedge their bets that it will or will not rain, as will frackers and fishermen. As for the speculators, we know who they will be.


The reverberations of a global water futures market can hardly be imagined. This much is clear: a water betting game will leave crops thirsting and push the global price of food far beyond the peaks of the past five years.

The good news is that, unlike the failed attempts to regulate the derivatives markets in food, something can still be done in the case of water. There are plenty of examples of valuing water outside the realm of pure commodification. One of the best examples has been developed in the Ruhr basin in Germany. This riverine resource is managed not by the invisible hand of the market, but by a policy-creating body called the Ruhr Association. Cities, counties, industries and enterprises in the region are represented by associates and delegates. A total of 543 stakeholders negotiate water-abstraction fees and pollution charges. The politics may be messy, but it works. Unfortunately, that is the way with democracy.

There is no easy panacea for the world’s water needs, least of all the global derivatives business, which has proved that it is not to be trusted with mortgage-backed securities, much less our most precious resource. There is no need to initiate a futures market in water only to create yet more financial madness that seems to resist all attempts at regulation. This time around, let the business stop before it starts.

Worth reading the whole thing. He’s pretty scathing about Payments for Ecosystem Services (PES) and work on The Economics of Ecosystems and Biodiversity (TEEB).

Separated at birth: Lehman Brothers, nukes

Great post from Nils Gilman on Small Precautions:

In 2006 RAND staged a wargame to think through the implications of a nuclear terorr incident. They created a specific scenario – a tactical nuclear device being detonated by a terrorist organization in the Long Beach harbor – and then staged a role-play to determine how key stakeholders would react and work together. The experience must have been incredible, because even the write-up is riveting. When I revisited this text today, however, what struck me with particular force was RAND’s assessment (this is in 2006, remember) of what the longer-term economic implications of such an event would be:

“The attack is likely to have dramatic economic consequences well beyond the Los Angeles area:  

  • Many loans and mortgages in Southern California might default. 
  • Some of the nation’s largest insurance companies might go bankrupt. 
  • Investors in some of the largest financial markets might be unable to meet contract obligations for futures and derivatives. 

“While exact outcomes are difficult to predict, these hypothetical consequences suggest alarming vulnerabilities. Restoring normalcy to economic relations would be daunting, as would meeting the sweeping demands to compensate all of the losses.”

As some of you will no doubt observe, all of these consequences in fact did come to pass just two years after this report was issued – as a result of the Lehman Brothers default, the consequent collapse of AIG, and the cascade effects which are still creating malign reverberations throughout the global economy, above all in the Eurozone.

Usually when people say that something would be “like a nuclear bomb going off” they are exaggerating; but in the case of the Lehman default, it is accurate.

All change at Change.org?

I like Change.org. Everyone likes Change.org. It’s about harnessing the power of the internet to empower citizens and help them push for stuff they mind about – everything, as they say, from “supporting curbside recycling programs to fighting wrongful deportation to protecting against anti-gay bullying”. So why is my Facebook feed suddenly full of people accusing them of (for example) “leaving behind values to chase the dollar bills”? Over to the Huffington Post:

Change.org, the online social movement company founded on progressive values, has decided to change its advertising policy to allow for corporate advertising, Republican Party solicitations, astroturf campaigns, anti-abortion or anti-union ads and other controversial sponsorships, according to internal company documents.

Change.org currently operates under a values-based client policy, only accepting advertisements from progressive organizations that share its values. The new policy will be closer to “a Google-like open advertising policy in which determinations about which advertisements we’ll accept are based on the content of the ad, not the group doing the advertising,” according to a company FAQ sent to staff.

So what gives? Has Change.org really just tipped overnight to inviting ads from corporate polluters, the National Rifle Association, puppy torturers and other undesirables? Continue reading

The unbelievable, incomprehensible, off-the-charts stupidity of imprisoning scientists for being wrong

Did this really just happen?

Six Italian scientists and an ex-government official have been sentenced to six years in prison over the 2009 deadly earthquake in L’Aquila. A regional court found them guilty of multiple manslaughter. Prosecutors said the defendants gave a falsely reassuring statement before the quake, while the defence maintained there was no way to predict major quakes.

That is so obviously, totally and unbelievably stupid that I am for once lost for words. So I shall content myself with linking (again) to the literature on what makes for high-reliability organisations. Over to Karl Weick and Kathleen Sutcliffe in their classic book on the subject, Managing the Unexpected :

The best high reliability organisations increase their knowledge base by encouraging and rewarding error reporting, even going so far as to reward those who have committed them … researchers Martin Laundau and Donald Chisholm provide [the example of] a seaman on the nuclear carrier Carl Vinson who reported the loss of a tool on the deck. All aircraft aloft were redirected to land bases until the tool was found, and the seaman was commended for his action – recognizing a potential danger – the next day at a formal ceremony.

That is how you create a transparent organisational culture that displays what Weick and Sutcliffe call ”a preoccupation with failure”, that recognises that uncertainty and accidents are inherent parts of the real world, and that aims to learn from them when they happen.

If on the other hand your reaction to uncertainty and accidents is instead to imprison people for them, then you’re not only an idiot; you’re also contributing towards more of both. Judge Marco Billi, ladies and gentlemen. What an imbecile.

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