The Invisible Hand Won’t Solve the Climate Crisis. Capitalism Must Evolve.

[applegrove]

The Invisible Hand Won’t Solve the Climate Crisis. Capitalism Must Evolve.

By Andrew J Hoffman at Evonomics

http://evonomics.com/the-invisible-hand-wont-solve-the-climate-crisis-capitalism-must-evolve/

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Capitalism is a set of institutions for structuring our commerce and interaction. It is not, as some think, some sort of natural state that exists free from government intrusion. It is designed by human beings in the service of human beings and it can evolve to the needs of human beings. As Yuval Levin points out in National Affairs, even Adam Smith argued that “the rules of the market are not self-legislating or naturally obvious. On the contrary, Smith argued, the market is a public institution that requires rules imposed upon it by legislators who understand its workings and its benefits.”

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The problem with the pernicious notion that a corporation’s sole purpose is to serve shareholders is that it leads to many other undesirable outcomes. For example, it leads to an increased focus on quarterly earnings and short-term share price swings; it limits the latitude of strategic thinking by decreasing focus on long-term investment and strategic planning; and it rewards only the type of shareholder who, in the words of Lynn Stout, is “shortsighted, opportunistic, willing to impose external costs, and indifferent to ethics and others’ welfare.”

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Going beyond our understanding of what motivates people and organizations within the market, there is growing attention to the metrics that guide the outcomes of that action. One of those metrics is the discount rate. Economist Nicholas Stern stirred a healthy controversy when he used an unusually low discount rate when calculating the future costs and benefits of climate change mitigation and adaptation, arguing that there is a ethical component to this metric’s use. For example, a common discount rate of 5% leads to a conclusion that everything 20 years out and beyond is worthless. When gauging the response to climate change, is that an outcome that anyone – particularly anyone with children or grandchildren – would consider ethical?


Another metric is gross domestic product (GDP), the foremost economic indicator of national economic progress. It is a measure of all financial transactions for products and services. But one problem is that it does not acknowledge (nor value) a distinction between those transactions that add to the well-being of a country and those that diminish it. Any activity in which money changes hands will register as GDP growth. GDP treats the recovery from natural disasters as economic gain; GDP increases with polluting activities and then again with pollution cleanup; and it treats all depletion of natural capital as income, even when the depreciation of that capital asset can limit future growth.



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[Gregorian]

1. Excellent article.

Not only does it show that people are paying much closer attention to the issues we face with things like income inequality, but they take a few more steps and address the real quality of a society.

And the notion that this is an evolution is one I think many people are missing. We work with what we have, and intelligently turn it into something that works better than what we have now.

There are more astute observations in the article. I also had to laugh at the part about admirable activities like driving an electric car. That isn't going to fix climate change.

[applegrove]

2. The website is called evonomics. I just signed up and get articles sent to my email.

[Odin2005]

3. More like Capitalism should be overthrown. n/t

[nadinbrzezinski]

4. another person that needs to read the full reference to that magical hand

which Smith took to the woodshed.

That said, our current form of whatever we call this, is quite unhelpful to survival of the species

[hifiguy]

5. Capitalism as we know it must END.

The "competitive" model must be radically reformed into a "cooperative" model if the human species is to survive, and that means a final end to capitalism.

[applegrove]

6. Here is another article from evonomics on the same day.

http://evonomics.com/are-we-cooperative-or-competitive/

[hifiguy]

7. Thanks! Will definitely read that!