Amazonian Rainforest Fires.

I.B. Economics.

The recent Amazonian fires here in Brazil and their potential impact on global warming got me thinking about the role of economics, and how economic theories and models may be complicit in the process of environmental destruction and global warming. Do our models factor in the environmental impacts of economic activity, or do they ignore them?

Many analysts think that they ignore them and that new ways of thinking about the role of the economy and it’s connection to the environment are needed. One of these analysts is John Fullerton, an ex-Wall Street banker who has founded the Capital Institute, a non-profit organisation whose aim is to completely rethink our economic and financial models with a view to making them much more responsive and attuned to how they impact our environment.

“ This search first opened my eyes to the profound, interlocking crises we are now facing – ecological, economic, and social – including the shocking prospect that we are destroying the planet’s ability to support life as we know it. My most startling discovery, however, was that the modern scheme of economics and finance – what Wall Street “geniuses” (like me) practiced so well-formed the root cause of these systemic crises”
John Fullerton, Ex-Wall Street Banker

A major criticism of traditional economics is an obsession with economic growth. Maximizing economic growth is an important macroeconomic policy objective for most governments, but this usually has considerable negative environmental impacts.

Amazonian Production Possibility Frontier – The Trade-Off Between Economic Growth and Nature.

Jair Bolsonaro, the controversial new Brazilian President, wants to ‘develop’ the Amazon by encouraging more production of meat, soya and timber. In other words, using the PPF diagram above,  he wants the Brazilian economy to move from point e to point f on the above PPF. The opportunity cost of these policies, however, will be less rainforest as shown by the movement from A to X on the horizontal axis.

Brazil is in the process of recovering from one of its worst-ever recessions and Bolsonaro sees Amazonian ‘development’ an opportunity to dig the economy out of the recession. The Amazonian region is also one of the poorest in Brazil and any development of the region could pull many of its inhabitants out of poverty.

However, the Amazon rainforest plays a crucial role in regulating the world’s environment; it contains twenty per cent of the world’s animal and plant species, its plants hold ten years worth of carbon emissions,  and it helps regulate the precipitation cycle of the whole of South America. Extensive deforestation of the Amazon would have incalculable impacts on South America’s ecosystem and would sharply accelerate global warming.

 

 

Market Failure & Development.

I.B. ECONOMICS.

The second educational podcast in a series of three that looks at the  Section 4 topic of Development, in particular at the question of ‘the balance between markets and government intervention’  (Section 4.8).

Click here to see the first in the series.

Should governments intervene a lot in markets and in that way boost or accelerate development? Or is it better for them to leave markets alone and take a ‘stand off approach’?

What happens if, as is often argued, market failure in poor countries is much greater than in rich countries? Should governments intervene more because of this?

This podcast explores the issues of why market failure is higher, and whether or not the government should therefore intervene in markets because of this.

 

Corruption & Development

I.B. ECONOMICS.

An educational podcast that looks at the  Section 4 topic of Development, in particular at the question of ‘the balance between markets and government intervention’  (Section 4.8).

Should governments intervene a lot in markets and in that way boost or accelerate development? Or is it better for them to leave markets alone and take a ‘stand off approach’?

What happens if the government in question is corrupt? Does a corrupt government, when it intervenes in markets, hinder, or help the situation?

The following video discusses corruption, its causes, its effects, possible solutions to the problem, and the government’s role in the development process.

Development Economics – South Africa Verses Brazil

IB Economics.

The Similarities and Differences Between South Africa and Brazil.

(Syllabus Section 4.1 – Similarities and Differences Between Developing Countries).

I am spending the holiday in South Africa at the moment so thought that I would do a post on South Africa and Brazil.

When I started studying economics all those years ago we used the terms ‘ the First World’, the ‘ Second World’ and the ‘ Third World’ – meaning the rich countries, the Soviet Bloc countries and the poor countries of the world. However, the phrase ‘ Third World’ implies that all the poor countries are lumped into one block and are the same. Not true.

One of the most difficult things about development economics ( and for the politicians and government bureaucrats that try and ‘manage’ the development of a country) is that every county is different – they have different histories, different resource endowments, different cultures, different political systems, different climates, different languages and different social institutions.

Each country therefore faces it’s own unique problems that require their own unique solutions.

Here are the similarities between Brazil and South Africa ( SA) :-

  • Both are middle income countries – $ 6617 GDP per capita for SA in 2013, and $ 11208 for Brazil.
  • They are regarded as the industrial power hubs of their two continents
  • Both have been classified as BRICS
  • Both rely on the extraction and export of raw materials
  • Both have been suffering from falling economic growth recently because of the slowdown in the growth of China and the fall in raw material prices
  • Both countries currencies have depreciated a lot recently
  • Colonization – Brazil by the Portuguese, South Africa by the Dutch and the British, are common to both countries.
  • Both are located in the Southern Hemisphere
  • Both countries became truly democratic relatively recently ( see below)
  • A strong African culture exists in both countries – in the case of Brazil due to slavery
  • Extreme inequality of income and wealth, as shown by the shanty towns of SA and the favela’s of Brazil, are features of both countries.
  • Both suffer from very high crime rates
  • Both suffer from corruption

Here are some of the differences:-

  • South Africa’s experience of colonialism was longer and much more traumatic for the country, due to the racist system of ‘ Apartheid ‘ – the forcible separation of races and cultures in the country. Apartheid only ended in 1994.
  • South Africa’s peoples and cultures are more diverse than Brazil’s – SA has  eleven official languages!
  • Brazil’s population is much bigger than SA’s – 250 million verses 53 million
  • Brazil is a much bigger country than SA
  • SA, arguably, has a better infrastructure than Brazil.

This thirteen minute video is about the life of Nelson Mandela, one of the greatest leaders of the 20th Century,  and the man largely responsible for  ending Apartheid  in South Africa.