Thursday, July 24, 2008

Why Political Economy?

Political Economy examines the interplay between powerful economic actors and market forces. It looks at government, NGOs, news organizations, religions, unions, oligopolistic corporations, and even individuals that possess either great wealth, political power, charismatic personalities and/or celebrity status.

Economics is based on a beautiful yet fleeting abstraction: that dynamics of nature drive the forces of supply and demand to produce an equilibrium price that will satisfy everyone involved. The state of natural perfection, often called the "market" will constantly adjust and readjust via the price system to achieve the "one price" that will "clear the market" of all products and send all customers happily on their way home.

Political Economy does not deny market forces, but recognizes that the real world consists of actors that have little interest in being subject to market forces. Every business strives to transcend market forces and establish a dominant presence with the power to set its own prices. Governments work to even out the business cycle with intentional policies to either stimulate or (rarely) slow down the economy. Central Banks like the Federal Reserve use their power over the money supply to influence the economy.

Thursday, July 17, 2008

Resist Shock: Employ Rationality

Tonight I went to a talk by Naomi Klein, columnist for The Nation and author of the recent bestseller, The Shock Doctrine: The Rise of Disaster Capitalism. The book is a excellent antidote the current preoccupation with market fundamentalism and doctrines of Milton Friedman and Friedrich Von Hayek.

The book is a great critique of the Commanding Heights, an intriguing book about globalization and the move from governments, but one that falls short of a penetrating analysis. It is an interesting travelogue of how different countries overcame the legacies of colonialization and communism, with great personalities, and an optimistic view of the structural readjustments undertaken by many countries. The impact of privatization for example. I plan to compare the two in one of my classes.

I've not bought into Klein's perspective entirely, but her warnings about the use of crisis to implement radical economic changes are very useful in a time when we are debating building more nuclear power plants and drilling offshore many of America's most beautiful beaches.

Friday, July 11, 2008

35 MPG: Bush Signed the US Auto Industry into Extinction

Just after Christmas I wrote about the laughable Energy Bill mandating an average 35 mpg for car companies by the year 2020. With a stroke of his pen, President Bush had signed the death sentence for the US automobile manufacturers. True, the bill took forever to get through Congress, primarily because the Republicans refused to increase the requirement of electricity that electric utilities needed to get from renewable sources. Basically the bill was a testament to the power of entrenched powers - oil, electric, and auto - to control the energy policy.

Today I checked the stock prices on those companies and GM was under $10 at $9.69 for the first time in 50 years while Ford hit a new low of $4.60. GM needs some $15 billion to remain solvent according to Merrill Lynch and with consumers racing away from trucks and SUVs its difficult to see how they will return to profitability.

The price of crude oil is $141.65 while the price at the pumps went way over $4 a gallon. We have basically had the same automobile industry - that includes the logistics/distribution system for its primary fuel - for a hundred years. Now it looks like Bush added 12 more years to this dying legacy.

Some of my friends say let the "free market" take care of this. OK, I have a Toyota. I'm doing my part.

So what is the point? Government needs to kick this industry in its butt. We need guidelines that are more realistic, like 50 mpg by 2015. Electric hybrids with regenerative braking is the most promising technology on the horizon. Hydrogen also has potential (but so did Zeppelins). Government needs to put the pressure on these companies to adapt the new technologies and become much more efficient. This is the "competition" the US automobile industry needs.