The Darwin Economy: Liberty, Competition, and the Common Good

 It was an interesting coincidence, that 3 days before my deer-photo-outing, attended an event @LSE, (part of  'LSE IDEAS series- Ideas that can change the world!')  where economist Robert Frank, talked about his new book The Darwin Economy: Liberty, Competition, and the Common Good  (He is Cornell University professor of economics and management, Author of  'The Economic Naturalist', and a text book 'Principles of Economics' co-authored with Fed Reserve chairman Ben Bernanke. His text books are followed at LSE as well. The other books include Winner-Take-All Society, Luxury Fever, What Price the Moral High Ground?. He is also New York Times economics columnist. His books have been translated into 22 languages). It was a BBC Radio4 interview & public conversation hosted by LSE Dept of Management, conducted by BBC economics editor Paul Mason.. There was full audience of around 800 @LSE.

I attended the event as I quite liked his other book,  'The Economic Naturalist' (2008), a different approach to economics; His radical/refreshing approach to teaching economics to his students, starting from simple questions of the everyday things that can be linked to economic justification, as mentioned in that book. I was more drawn to his linking of 2 topics-- finding simple analogies in nature, for economic theories!. Also, felt he has a certain humbleness about him, and as The Guardian noted in its review of his book 'The Winner-Take-All Society', "he has lucid writing style and a willingness NOT TO TAKE HIMSELF TOO SERIOUSLY"
The media intro's to this new book The Darwin Economy said, it looks more extensively  into Economics and Natural History!- 2 subjects that fascinate me, as they surround us in our daily lives, with so many mysteries to unravel! ;), esp in Natural History.

The new book also tells about the parallels in economics and evolution- about competition and consequences of risk-taking behaviour, which are so central to econimics today. The book sets out to answer a strange-sounding question: ‘Who was the greater economist--Adam Smith or Charles Darwin?!’ Frank predicts that within the next century Darwin will unseat Smith as the intellectual founder of economics. The reason, Frank argues, is that Darwin's understanding of competition describes economic reality far more accurately than Smith's. 
It is said, 'To be an economist without having read The Wealth of Nations by Adam Smith, is like being a priest without having read the Bible.'

The talk starts by asking Frank, "We've built 200years of economic theories based on the achievements of Adam Smith. What did we do 'wrong' ?".
He replies: "I am not against Adam Smith--rather, a huge admirer of Smith myself, but against the Modern caricature of Adam Smith as put forward by the free market enthusiasts, esp in the US, and American Right wing, who are Smith's biggest disciples.. They have a wrong notion of what Adam Smith wrote (in The Wealth of Nations)".. Frank says about the de facto bible of economics and the libertarians who interpret it wrongly;  Their notion, for instance, like that of a typical invesment banker, is  that in pursuing self-interest, they are pursuing the good of all.. and in free markets, whatever survives and prospers is to be morally celebrated.. while also wanting competition without regulation. This, Frank argues, is NOT for the common good.

 Darwin has more general view of the competitive process-  he says, Darwin's GREAT INSIGHT was that sometimes individual gains/interests coincide with group interest, but OFTEN they DON'T-- Whenever there is such a conflict, it's often the individual interest that triumph, often to the great cost to the group.
Much of the competition in the business world, is against its own kind.

But according to Darwin, whatever survives in Nature is not always of the kind to be 'morally celebrated'.
 Competitive imperatives led animals to do things that were brutal in terms of the well-being of other members of the group- like killing the offsprings of other dominant males, as in lions.
Sometimes, what benefits the individual, puts so much more risks on the the group-- nowhere more than the Financial insdustry! (And that eventually led to economic catastrophy, global recession)

In the opening stages of the conversation, he is also asked an interesting question: "It is rare to read an economics book and come away with such a startling image, as one comes away with from the beginning of your book, of an elk (the large deer, called moose in the US) with giant antlers. Explain to us, what you mean by that metaphor/analogy", and Frank goes on to talk about antlers in elk  : About balancing evolutionary advantage and disadvantage of having bigger and bigger antlers as the species evolved. The advantage of bigger antlers, is the reproductive advantage of getting to mate with as many females as it can get, by fighting off those with smaller antlers; disadvantage of it being the bigger risk of getting easily hunted down by wolves. The antlers grew bigger and reached an equilibrium [This equilibrium may not be good for 'the elk males as a group': Having to carry antlers weighing upto 40pounds]. The point being, individual gains/interests does not coincide with group interest in this case.

Another interesting point he raises towards the end, is that Modern Economics so much ignores "context" in the models, and focuses too much on mathematics.

[The Audio podcast of the event is available here on BBC Radio 4: Edited version, fitted into 30min for the radio. http://www.bbc.co.uk/iplayer/episode/b0174f06/Analysis_The_Darwin_Economy/  ]

The full event video @LSE, ~1hr:






More about the book here:  http://press.princeton.edu/titles/9509.html

Here is also a 7min video highlight, of Rober Frank talking about the themes in the book



Other full length video of talks available..
from Princeton University Press: [ At the start of this talk, he also tells what propelled him to write this book- Fed-up and frustrated by hearing all the rhetoric of the libertarian American right wing, he sat and started typing his response, whic over a period of time evolved into this book! ]
http://www.youtube.com/embed/HJUoHkGYsOA

and talk at New America Foundation:
http://www.youtube.com/watch?v=o6dpdITsPOg
x..x

Food Price Rise, Speculation in Commodities Market, African Land Grabs, Biofuels.. What a cocktail?!

It's amazing, how incredibly linked, different parts of the Earth's Ecosystems are!.. 
Equally amazing, how incredibly linked, different parts of the world's Economic systems are as well!
Interestingly, there are new studies going on, to try and evaluate the link between these two- by the impressive TEEB study..About The Economics of Ecosystems & Biodiversity.. ( http://greenwich-times.blogspot.com/2011/04/talklse-economics-of-ecosystems-and.html)


I've been fascinated by the Ecosystems for long.. and have tried to get my head 'round the Economic systems.. and its impact on the former as well as their interactions..[ From that respect, the TEEB does a wonderful job of coming out with meaningful,practical data that can be used by governments, policy makers, local authorities etc. ]
The following is a result of collating related articles I had read in recent times; mostly from Economics point of view..


To start with, here is a brief 2-min audio: UN official explains, how gambling in food commodities market by finance companies is affecting prices for consumers..

(http://www.guardian.co.uk/global-development/audio/2011/jun/01/food-speculation-olivier-de-schutter-audio
Nearly 1 billion people around the world are going hungry each day and dozens of countries are facing food shortages in the near future. What role does food speculation play in this? Olivier de Schutter, the UN's special rapporteur on the right to food, explains )
 
Here is some interesting statistics from a related report (from http://bit.ly/forests-farming-food-land ),

• UN's food price index has risen 37% since Mar/2010- Basic cereal prices are up 60%, Wheat is up 63%, &maize 83%.

• ~1million people slide into extreme poverty for each 1% rise in global food prices, according to World Bank's analysts..

Apparently this gambling in food market is a phenomenon started in recent years, for which the US brought in some regulations,after subprime crisis/market crash..But happens blatantly in other markets: http://bit.ly/speculators-food-price-rise , http://bit.ly/cocoa-market-abuse

After the Real Estate/Sub-prime tornado that left the US 'Financial Landscape' in tatters,
ruthless investment companies(the perpetrators of much of it?),r spreading their vicious influence onto new fields-
Shifting focus from American housing market to Global Food market- more basic&wider needs!
Apparently,the guile of the wily spiders,thru their wider nets,has started affecting huge populations more directly..

(See: Hedge Funds 'Grabbing Land' in Africa:

http://www.bbc.co.uk/news/world-africa-13688683  )

After their increased Speculation/Manipulation/Gambling on Commodities market, reportedly causing food price inflation, in recent years..,
now onto African Land Grabbing!
Time will tell, whether these will ultimately cause more devastation worldwide than the sub-prime crashes..- and whether it will be delivered in doses sporadically across the globe and hitting like slowly affecting poison than one huge blow!

There has been a spate of reports on manipulating food prices recently- from last year:
O'course, Hedge funds may not be the sole reason for price rise, but they are making it much worse..(UN's FAO confirming this)

( http://www.guardian.co.uk/business/2010/jul/19/speculators-commodities-food-price-rises
independent investigations revealed, in 2010 Goldman Sachs made a profit of $1bn through gambling on the price of everyday foods..
While there were food riots due to price rise, in Mozambique last year [..and in Mexico and Haiti in 2008, said another report]

Such price inflation affects not only the starving population in poorer countries, but also those in developed nations..
--> cocoa prices jumped to a 33-year high, as it emerged that a London hedge fund had snapped up a large part of the world's stock of cocoa beans.
--> A 150% rise in cocoa prices over 18 months forced many chocolate-makers to raise their prices and often to use less cocoa.
)

( Some insights into how investors can make the price change faster than that caused by the demand-supply market dynamics of traditional consumers and producers :

http://www.guardian.co.uk/environment/2010/oct/25/impending-global-food-crisis

World Development Movement -WDM in London warned that food speculation by hedge funds, pension funds and investment banks was likely to prompt further inflation.

Mounting anger has greeted food price inflation of 21% in Egypt in the last year, along with 17% rises in India and similar amounts in many other countries. Prices in the UK have risen 22% in three years.

Longtime hedge fund manager Mike Masters, who has worked with WDM, said: "Because there is already much more capital available in the world than hard commodities, speculators can increase the price of consumable commodities, like foodstuffs or energy, much higher than traditional consumers and producers can react.
)

..and related article on shortage of land for farming..
http://www.guardian.co.uk/environment/2011/may/18/forests-farming-food-land

Couple of years back,had seen documentaries/read of the Arabs doing a lot of Land Grabs of African farmlands, but that was more out of concern about their food security though!.

..and Finally:

Rush to Use Crops as Fuel Raises Food Prices and Hunger Fears..

http://www.nytimes.com/2011/04/07/science/earth/07cassava.html?_r=1 

Talk@LSE- The Economics of Ecosystems and Biodiversity : Ending the Economic Invisibility of Nature

The recent talk at London School of Economics,

"The Economics of Ecosystems and Biodiversity : Ending the Economic Invisibility of Nature",

by economist Pavan Sukhdev, head of UN Environment Programme's Green Economy Initiative,

and Study Leader of TEEB .

Prior to his work for TEEB and UNEP, he was Head of Deutsche Bank's Global Markets Business in India

 and a founding member of the Green Indian States Trust (GIST).

The Economics of Ecosystems and Biodiversity (TEEB) study is a major international initiative to draw attention to the global economic benefits of biodiversity, to highlight the growing costs of biodiversity loss and ecosystem degradation, and to draw together expertise from the fields of science, economics and policy to enable practical actions moving forward.

The TEEB study is being led by UNEP with financial support from the European Commission, German Federal Ministry for the Environment, and the UK Department for Environment, Food and Rural Affairs.

The study is led by Pavan Sukhdev, a senior banker from Deutsche Bank, and founder-director of the green accounting project “GIST” (Green Indian States Trusthttp://www.gistindia.org/ ) in India. Mr. Sukhdev is currently on secondment with UNEP. This proposal was endorsed by G8+5 leaders at the Heiligendamm Summit on 6-8 June 2007, and work on the TEEB (The Economics of Ecosystems and Biodiversity) study began.

[45min talk. 1hr 30min, including Q&A ]

If interested, the slides are available here.

I think he is heading very important initiatives and studies very relevant in the context of Sustainable Development.

This talk was held by invitation from LSE's Grantham Research Institute for Climate Change and the Environment,

chaired by Nicholas Stern, whose famous ' Stern Review on the Economics of Climate Change' of 2006 discusses the effect of global warming on the world economy, the most widely known and discussed report of its kind.