Sunday, March 2, 2014

1338. Letter from Saral Sarkar: In Defense of the Limits to Growth Explanation of the Great Recession

By Saral Sarkar, March 2, 2014
Saral Sarkar

Dear Kamran,

I could not read your critical discussion-article on my essay immediately. I have many duties and obligations which cannot be ignored, and some projects that can be postponed, but only after finishing the unit already started. Moreover, I have to reply to your comments. So pardon me for the delay. I have seen that Dave has commented immediately. He must be a very young person. I cannot work as fast as he. By the way, I will read Dave’s comments later and respond if necessary.

Before I begin, I must say that I am very dejected. You are an eco-socialist. I thought, if it is so difficult to convince (explain to) you of the correctness of my analysis/thoughts, how much more difficult it must be to convince average, less intelligent and less knowledgeable activists and sympathizers. Be that as it may, let me now come to my comments/reply on/to your comments and criticisms. 

(1) You have written you are “focusing on the section that argues for a limits to growth cause of the Great Recession.” Actually you have done much more. I see two parts in your article: (a) Toward the end (section D of your commentary) you have raised philosophical/ethical issues. (b) At the beginning you have presented facts and figures on the present-day world and raised doubts about the validity of my thesis.

(2) Let me first reply to or comment on (a).

The purpose of my essay is clearly indicated in its title. It is to try to “understand the present-day world economic crisis”. Nothing more. I fully agree with you that philosophical/ethical issues must also be discussed by us. But I did not intend to philosophize in this essay on relations between humans and the rest of nature. Nor did I intend to prescribe ethical rules on our duties to the same. That would have overloaded the essay. This part of your article is therefore not a commentary on my essay.

You have read my book Eco-socialism or Eco-capitalism? If you remember, I have dealt with such questions in the introduction of this book (in a section on deep ecology). But since the readers of our articles in OPITW cannot be expected to have read my said book, let me respond to some of your comments:

You write: “At issue is nothing less than our species relation with the rest of nature.  But limits to growth does not provide us with a philosophy of nature or anything about who we are, where we come from and where we are going.” You are absolutely right. Where is the problem? You should not at all expect that this idea/thesis, namely that there are limits to (economic) growth, should give you a philosophy of nature etc. ?

I guess you have totally misunderstood the terms “paradigm” and “paradigm shift”. You write: “Limits to Growth of the Club of Rome, if taken as a paradigm, may offer a technical approach to nature as provider of ‘resources’ and ‘services’ but not an ethical perspective for a good society”. A paradigm does not offer any such thing, offers no particular policy or approach. It is a framework made up of accepted basic facts and a basic theory, thesis or hypothesis, within which scientists, thinkers, policy makers etc. do further research or think further or lay down policy. They may lay down different policies, but all such policies remain within this framework. Example: In astronomy there was a shift from the geocentric paradigm to the heliocentric paradigm. I have devoted a section in my book Eco-socialism or Eco-capitalism? (introduction) to this matter. In short, in every area of thought, science, policy etc. there are big/comprehensive and minor paradigms. Limits to growth as a paradigm pertains to areas such as economics, politics, social and social welfare policies. It is not the task of a paradigm to offer an ethical perspective for a good society. For the area of thought called ethics too there may be competing paradigms. But I do not know. I can only say that those who are thinking about the contours of a good society, must also know what is economically possible and what not. Only to that extent limits to growth as a paradigm has something to do with thoughts about a good society.

You write: “the crisis we face is really a crisis of the anthropocentric civilization that has manifested itself as the crisis of the industrial capitalist system.” I have discussed anthropocentrism in the introduction of my book Eco-socialism or Eco-capitalism? All hitherto existing civilizations have been anthropocentric. You have rightly said: “limits to growth have operated throughout human history”. That is why there has been ecological damages and relative shortages of resources in every epoch and everywhere. But what does it mean for us in concrete terms?

You write: “I submit that ecological socialism and anarchism or any other emancipatory movement should be based … on a positive world movement to reintegrate ourselves with the rest of nature.” That is too much for even the best eco-socialist or eco-anarchist. I wrote to you in my comments on an earlier essay of yours that going back to a hunter-gatherer way of living (that is what is required to reintegrate ourselves with the rest of nature) is for the time being impossible/unimaginable. It may be possible or even necessary after a great collapse, when human numbers have gone back to perhaps just one million or two. But for today, we should concentrate our discussion upon what is imaginable in the next 100 years. Even a theoretical ethical discussion must take note of the limits to what is technically possible and what not. One may then go further and issue ethical commandments: e.g. eat vegan or at least vegetarian, use for lighting only lamps that need only vegetable oil etc. But of what use are such discussions today? Such discussions (and possible decisions) have nothing to do with the question whether there are limits to growth or not. They may be carried on separately. The crisis we are facing today have little to do with such questions.

(3) Let me now reply to / comment on (b).

(i) You write: “The title of the article is somewhat misleading.” It is not. We have to differentiate between a recession and a crisis of capitalism. In capitalist industrial economies, recessions are routine things, they come and go in the framework of a trade cycle. Economists consider them to be ephemeral phenomena. Crises are much more serious things, fraught with many difficulties, which is why they are difficult to overcome. I want to say what we are experiencing today is a great crisis. The title is therefore appropriate.
(ii) You are right. I am not at all satisfied with the (narrowly understood) “economic” explanations of the crisis given by standard economists. If those explanations were correct, their “Great Recession” would be over in two-three years. Actually, however, even six years after the “recession” began, it is not coming to an end. Even some standard American economists, e.g. Larry Summers, have now realized what I said in my essay in 2010, that this is going to be a long stagnation, in other words, a crisis.

(iii) You write: “Saral’s argument is that … the Great Recession is really caused by natural limits to growth, not economic or social ones.” The second part of this summary of my view is wrong. The 3-4 trends that led Meadows et al. to the conclusion that there are limits to growth are all economic in character. As for social causes, I have recognized them sufficiently. Under the circumstances of meager or no growth leading to unsatisfactory profit rate and high unemployment, workers were under pressure: falling real wages and deteriorating working conditions. I think I have mentioned these things.

(iv) We should differentiate between price of a raw material and its extraction (or collection) costs. Price of any commodity depends on many variable factors (demand, taxes, wages, subsidies, interest paid on credits, profit expectation of capital, and prices of materials used in its production). Extraction costs of minerals depend, apart from the other things mentioned above, heavily on two constant factors: geography and geology. With continuously worsening geographical and geological conditions, extraction costs of minerals cannot but tendentially increase. This is common sense (see chapter 4 of my said book).

We should also differentiate between energy costs and money costs. Money is not a solid thing. Central banks issue or withdraw it at will. Nobody really knows for more than a day how much a dollar is really worth. Its value fluctuates constantly. But energy spent for doing a particular work with a given technology is more or less constant. With progressively worsening geographical and geological conditions, extracting minerals is requiring more and more energy expenditure. Think of oil extraction from the increasing depths of oceans and compare its energy costs with that of Texas oil in the early 20th century. This explains why raw materials are generally becoming costlier.

Rising energy costs of extracting raw materials also get reflected in the money prices of the same. Of course, falling demand at the market also has a strong countervailing effect on the (money) price. But it cannot always and fully offset rising money prices resulting from rising energy costs of extraction. That is why, despite a six year long recession or stagnation and falling growth rates, oil prices are still hovering in the range of 100 to 110 US dollars.
It is not difficult to understand that with rising costs of production and falling demand resulting from rising raw material costs, many businesses become unviable. I remember, the connection between the two was also noticed in 2008 by the mainstream media.

We know that supply of nonrenewable resources cannot, logically, be increased indefinitely. At some point, peak production is inevitably reached. You know about the peak oil discussion. And we also know that no producer can sell anything at a price below his production costs, not for a long time.

All these points have also been discussed in more detail in chapter 4 of my book Eco-socialism or eco-capitalism?

(v) Against these truisms based on logic and common sense you conclude, basing yourself on data supplied by Credit Suisse employees, that there is no secular and permanent rise in prices of the primary commodities taken as a group. You have even referred to “many economists and commentators” who hold/held the view that “over time commodity prices tend to fall”.

(vi) The flaw in your reasoning is as follows: Credit Suisse employees have considered data for the last 110 years. But peak oil was reached in 2005 or 2006. Also peak in the production of other minerals, if already reached (or if nearing peak), has happened only recently. The data of Credit Suisse is therefore irrelevant for our discussion. In the last 110 years many new easily accessible and exploitable deposits of oil, gas, coal and other minerals have been found and they also have been exploited. That led to abundant supply and falling extraction costs and money prices of these minerals. For some years now however an opposite trend is observable. It is common knowledge that at least in the case of oil, more deposits are getting exhausted than what is being found. 

(Strangely, at another place in your critique you contradict yourself and agree with me. You write: “Whereas cost of production of natural resources will increase given enough time due to diminishing returns, it is quite possible that prices decline in intermediate terms using new technologies.”)

Energy costs are of crucial importance for the whole economy, for all production in industrial economies depend heavily on some or other form of nonrenewable mineral energy. If you could consider the Bronze Age or Iron Age prices of products (including those of Bronze and Iron) manufactured with manual labor and tools operated by hand (no electricity, no fossil fuels, only wood), then you would know that 3 or 4 thousand years ago prices of raw materials (in fact, that of any manufactured thing) were much higher than those in 2008. But that cannot mislead us to saying that there is a secular tendency of raw materials prices to fall.

As long as mineral energies were abundant and cheap, prices of almost all products (including agricultural ones) showed a tendency to fall. Not only because they themselves were cheap, but also because they allowed many newly invented machines to be used. But this era has now come to an end. A time series for the last 110 years is of no use. A meaningful time series should begin in, say, 2005, when peak oil is supposed to have happened, or, to show the difference between pre-peak-oil and post-peak-oil prices, in 1990, when oil was still cheap and abundantly available.

    (vii) You write: “this cyclical rise in some primary commodity price was not a significant causal factor in the Great Recession. In fact, I know of no study that makes such a claim.”
    I have tried to show that this has not been a cyclical rise but a secular one. Maybe it is still difficult o see it as such because the countervailing effects of falling demand resulting from recession and falling growth rates (themselves caused by high commodity prices) are obfuscating analysis. Maybe the picture will become clearer in another ten years. It is always so. With the benefit of hindsight one understands a matter better.

    If you haven’t yet seen any other study that makes the claim that I make, that is not at all surprising. As Thomas Kuhn has said in his famous book, at times when a paradigm shift has just started, most scientists/authors still adhere to the old paradigm and carry on their work as before, within the framework of the old paradigm. Only a few dare to propose a new explanation of a phenomenon. But in course of time, more and more scientists shift their loyalty. That is also the case with Marxists. I have read a few die-hard Marxist/leftist explanations of the present-day crisis in German. Nothing new, same old stuff, not convincing. 

    You have recommended some Marxist texts. But I may not be able to read them. After all, both time and energy are scarce resources, which we must try to put to best use in the service of our cause. And I have no academic ambition. A few Marxists seem to have seen the light: Bellamy Foster. Michael Löwy, for example. Maybe it is worth reading them. But if they have at long last come to the same conclusion as I, then there is no need to read them. Sandy has recommended some texts, where the authors have, according to him, given the same explanation of the crisis as I. Let me see whether I can make time. I can well guess that Herman Daly has given the same or a similar explanation. I have read some of his books.

    (ix) I have not suggested that defensive and compensatory costs can be easily quantified, nor have I demanded that GDP should be recalculated by deducting such costs. Of what use would that be? It is enough to point out the existence of these costs ignored in GDP. The only reason for pointing out these costs in my essay is to say that because of these costs the ordinary people, who ultimately pay for them, have less to spend or to service their debts including mortgage debts.

(x) A last word about our own writing work. It is not good to label some people and their writings as bourgeois. Theories, explanations, assertions etc. are either right or wrong. We cannot do all the necessary work ourselves. You have used the work of Credit Suisse employees. There are many bourgeois theorists who have thought and worked honestly. Bourgeois Malthus was right, while Marxist Marx was wrong. In my Crises book (preface) I have shown with a quote from George Caffentzis that Marx was biased when he set up the labor theory of value.

Dear Kamran, I think now it is enough. It has become long. I had thought I had closed this chapter of my work, namely the one on crisis, economy etc. But when you write on my thesis and ask me to respond, I cannot say no. But now it is really my final contribution. I shall not write any more on this topic. I have some other things to do which I also consider important. I have seen that Dave and Jonathan have written to you. I must read what they have written. And then finish 

Publish it in OPITW in whichever form you want. Then Jonathan can give a link to it for the others.

With warm regards


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