Many citizens throughout the world have concluded that our Capital Market system is an ecological Negative Zero Sum game driving human civilization toward an “end of time” apocalypse of horrific proportions.
With the Enlightenment and the Industrial Revolution that followed, the economic theory of Adam Smith relating to efficiency of an open and free capital market distribution of goods and services was universally accepted. Today, for most people in the world this understanding continues to be accepted. In America it was promoted by the economist Milton Friedman and is known as “The Chicago School.”
Some even refer to it as “the hand of god” allocating goods and services in the most cost effective and socially advantageous way.
That theory has now been exposed for its underlying planetary and human destructiveness. Many have even concluded there is a high probability of it bringing on an apocalypse of “end of time” ecological proportions. Adam Smith’s capital markets theory is seen as playing planetary and social “Russian Roulette” with horrific outcome.
It should be noted that these individuals critical of free and open markets are fully aware of the fact that Marxist theory as a solution to the problem was a failure. What then is the solution?
A reevaluation of Smith’s theory has activated an entirely new theory, one with a revised concept of market pricing wherein social and/or ecological externalities with negative value are financially recognized. All externalities so defined as dangerous to the continuation of life on the planet are priced in so as to eliminate the trade.
This essay calls for the rapid implementation of this new economic theory.
First a discussion of what has now become the most immediately dangerous negative planetary externality; the release of CO2 into the Biosphere from the burning of fossil fuels. Here is the reality:
In 2012 the World Bank warned that resultant high temperatures from CO2 could trigger what is called a Methane Hydrate Feedback Loop in the Arctic. It could raise planetary temperatures to the point where most life on the planet will die out. Scientists are now telling us that this temperature rise has already begun. Recent temperatures there have been the highest in recorded history.
This has now become the most immediately serious of our many ecological problems. And it brings to the fore the urgent need to convert to other forms of energy in a short period of time. That in itself raises very critical questions relating to the amount of fossil fuel that will be needed for the conversion. Will industries such as air, automobiles, trucking, ocean shipping and metals now so reliant on fossil fuels be able to make the transition; and if so, what can be the alternative energy form they employ? How will highly carbon consumptive basic industries such as concrete and steel make the transition? How will the citizens country by country, region by region, respond politically to such a state of economic disruption and reorganization?
These are questions not being broadly discussed in academia today or in the business community or in government. They should be. The future of human civilization is at stake.
There is a way that a relatively non-violent transition can take place. It will, however, require strong leadership throughout the planet at the international level. Fortunately we are beginning to see some positive signs of this. COP21 was a starter. It showed that there was a unity of common purpose among many world leaders. But it also showed a reluctance to make firm commitments. Meetings since then have been a disappointment.
The crisis is calling for far greater resolve. Heads of State must come together under the articles of a newly formed multinational body well beyond the stature of the United Nations. That organization was formed for the purpose of providing a forum for the nations of the world to achieve a unity of purpose. As humanity now faces the possibility of extinction, the need for such new purpose is far greater than it was when that international body was formed.
Within the next 36 months such an organization must come together and economically orchestrate an increase in the cost of carbon world-wide; from first moment of entry into the system and extending through to its becoming a part of derivative goods and services.
This would be a market approach. National and international carbon markets would serve as disciplinarian. They would force alternative forms of energy to be brought into the system up and down the production/consumption line. They would achieve this by pricing in gradual increases in the price of carbon, beginning at its source. Increasing carbon cost at its source would force higher prices to be passed through to the final price of all derivative goods and services. Non-carbon derivative forms of energy would then be given the incentive to become increasingly competitive. They eventually would replace carbon. Some end products that are solely reliant on the burning of large amounts of carbon would be eliminated entirely from the system by way of price appreciation.
There are far reaching social implications. Present consumers of carbon energy dependent goods and services will have to switch over to non carbon goods and services. Carbon producers will be forced out of the market. Carbon reliant socio/economic activities too will be forced out of the market. Price will force change.
This approach is congruent within the currently established framework of existing capital market systems both in nations and internationally.
But first a word on the profession of economics:
A move in the direction outlined here cannot occur without the voices of the prominent economists of our age. They can make the difference. Their profession is in control of economic thought. They can bring the public to an awareness of the seriousness of the problem and its solution by way of pricing in negative external costs.
The time has come for them to recognize this and to speak up.
Throughout the world and most notably in the Economic Departments of Western Universities, negative external costs are not being emphasized as a part of the decision making process. Maximizing total financial return is. There is little or no interest in saving the planet; becoming more efficient in exploiting it yes; but not in saving it.
Now to the details:
For producers of oil, gas and coal a national tax (Negative Externality Tax – let’s call it NET) will be levied at the point of extraction; defined as that point where the product enters the national and/or international market. That national tax will be increased year by year over a fifteen year period. It will therefore become integral to the pricing of all domestic goods and services in the country and the export pricing of goods and services.
The tax rate established for each compliant country will serve to bring domestic and/or international price up to an internationally agreed carbon equivalent figure. That figure would be increased year by year based on an internationally agreed world-wide 15 year carbon reduction formula. Here is an example for diesel: The NET would bring the cost up to say $70 per barrel domestically and internationally immediately and then over 15 years to say $ 200/300 per barrel or whatever price brings global carbon emissions down to an ecologically acceptable level.
In the case above revenue from the domestic tax will first be the difference between the internal production cost and $70, then year by year the increasing formulaic amount. That revenue will be retained by the producing nation where it can be used for needed internal investment and social adjustments. It can also be used to encourage non carbon activities and to develop non carbon sources of energy.
For those countries that refuse to comply, their exports of goods to compliant countries will be penalized (import duty taxed‑let’s call it IDT) by the import compliant country. Each and every import will be evaluated as to its local non taxed NET content.
Can this be accomplished? Some of the finest mathematical minds on our planet now spend their time devising algorithms for computerized trading of securities in order to exploit the weaknesses of other algorithms. The time has come for the economics profession to give these minds a new challenge, one that will benefit human civilization – and save it from the possibility of extinction.
Import duty revenues (let’s call them IDR’s) collected by compliant countries from non-compliant country imports can be turned over to a body such as the World Bank to be used to assist compliant nations with their difficulty in making necessary economic/social adjustments. These adjustments will fall into two categories; one the decline nationally in fossil fuel export revenues and the other the national destruction and dislocation being caused by ongoing climatic events.
Immediate examples of potential beneficiaries in the second category are a number of Island nations in the Pacific and elsewhere already being inundated by rising waters and Arctic settlements being affected by global warming. Most will be without internal resources to resettle population. Many other nations with low land areas being inundated by rising oceans will also need this kind of assistance.
Populations in many areas of the planet will be severely affected as fossil fuels are eliminated. Russia, Australia and the Middle Eastern countries are examples. Many Middle Eastern countries are almost totally reliant on oil revenues to pay for food imports. Such revenues will decline to the point where they will be insufficient for feeding the population. This also will have an impact on Middle Eastern oil and gas non-producers and minimal producers, those countries that have relied on grants from their wealthy neighbor producers. Egypt, reliant on neighbor contributions for food imports is a prime example. The future for Egypt will look bleak. Although extrapolating from present trends to make predictions is always problematic, the current projection is a population that will have increased from 90 million to 138 million by 2050. The Nigerian situation is even more bleak. Its petroleum industry is the largest in Africa. Its population of 186 million is expected to grow to 390 million by 2050.
Time will be needed to allow many of these countries to restructure and rebalance their economies. Also to reduce population levels. Others in need of assistance will be countries like India with pockets of poverty and minimal originating carbon revenue. Countries such as these will need massive injections of capital in order to restructure their industries and feed their populations. As a general rule, all nations that are unable to fund societal adjustments will need assistance.
The pricing/costing methodology here outlined will allow the world within the critical 10/15 year period to turn to carbon free sources of energy. Nation states at all levels of technological development will be given time to adjust. As they do, high carbon input products and services will leave the market and be replaced by energy input products with low or no carbon input. This will force nations at all ends of the planet to adopt a different social political economic energy structural logic from that which exists today.
It must be understood: This is just the first step toward human planetary resource control and human survival. Pricing in of other negative externalities harmful to humanity and all other life on the planet can then come next.
Homo sapiens continuation rests on this premise: The biosphere is finite. We must find a way to live in a congruent state within that finitude.
The time has come for all industrialized nations to acknowledge that the problem is planetary and it can only be solved multi-nationally.
The future of our human civilization hangs in the balance.
David Anderson brings together a wide range of interests in his writings, namely; theology, history, evolutionary anthropology, philosophy, geopolitics, and economics.
He has written four books. The fourth has just been published. It is about the necessary geo political, social, religious, economic paradigm shift for human survival.