The ‘Alt-Kuznets’ returns the Global Nominal Economic Paradigm to Sanity

The ‘Alt-Kuznets’ returns the Global Nominal Economic Paradigm to Sanity

GangaPrasad Rao

Energy, Environmental and Mineral Economist

gprasadrao@hotmail.com

gprasadrao.blogspot.com

gprao64.blogspot.com

Rather read the entire proposal in pdf? The Rao Alt-Kuznets 

The Nominal politico-economic paradigm that governs most all nations around the world engenders many-an-externality upon the global society. These externalities extend from social discrimination, and ESH excesses, to economic inequity, and interact in ways that turn the society riskier for all its members. The advent of trade and globalization has expanded the competitive domain of the Nominal paradigm to an extent nations and precincts permit various temporally-diffused and spatially-distributed externalities in the Commons and the Public to attract foreign capital, increment employment, and expand economic activity. However, those externalities do not attract the immediate cognizance of Nominal Capitalists for lack of a private, financial incentive. These externalities, diffused across space and time, cumulate imperceptibly until they assume crisis proportions, at which point the acuteness of the externality, the media attention focused upon it, and the public outcry, bring about a social willingness to pay that is sufficiently large for firms in the Nominal economy to exploit. This nominal time-scale of externality resolution, as evident from the yet expanding landfills and tyre dumps, and the exacerbating pollution of the oceans and atmosphere, could extend from decades to centuries. The time-scale potentially implies generations of humanity suffer (irreversible) damages to their futures and lifestyles.

Economists have long recognized the phenomenon of externalities, particularly as they are generated from the Commons- and Public-exploitive Nominal paradigm, and countered them with Kuznets hypothesis – the argument that environmental remediation and economic equality, that, more often than not, are relegated to the background in the early decades of unplanned, inefficient, and unbalanced economic development of a nation, regain importance beyond an ‘income threshold’. These externalities gain cognizance for reasons both, their temporal exacerbations, and higher sensitivity toward them following gains in societal income. Such increment in social sensitivity, followed by political cognizance and allocation of resources by elected governments, obtain an eventual resolution that returns the society back to sustainability. Stated differently, the ‘Environmental Kuznets’ asserts that politically-elected governments, from a macro-perspective, permit the global nominal economic paradigm to exploit the Commons and the Public while enlarging Private wealth, and thereafter allocate (tax-sourced?) resources/revenues to environmental remediation, and ultimately obtain a sustainable society for the Public. However, the Kuznets did not entirely anticipate the extent of globalization, its globally-distributed supply-chains, and widespread inter-continental impacts associated with the Nominal paradigm. Rapid globalization from open Trade, facilitated by international flow of Nominal Capital, shocked many societies to the realities of competition and triggered many environmental and social externalities – both, pecuniary and non-pecuniary. The resolution of these environmental and social externalities take many forms: from pigouvian taxes, cap-n-trade permit schemes to end-of-pipe regulatory standards, to social security, grants, and subsidies. With the exception of Cap-n-trade, these instruments are either local, policy-driven and source-specific, regional or limited to political boundaries. However, Sustainability institutions, facing a global, competitive nominal economic paradigm, would prefer a mechanism that is equally encompassing, cognizant of incentives that pervade the Nominal, and anticipating of its strategies. This blog is not a critique of the Kuznets; rather, it leverages the Kuznets proposition to motivate an alternative macro-finance-based rule, the ‘Alt-Kuznets’, that incentivizes nations to, concomitantly, resolve their SESH¹externalities locally, while competing in the global capital markets to attract Sustainability funds from multi-lateral institutions such as the IMF and the World Bank.

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Discussion

The Nominal Paradigm, operating through the Political-Banker-Business Compact, that leverages the public ballot to apply investor capital in the pursuit of public conveniences, infrastructure, and private lifestyle quality, and which exploits the existence of an FV-to-PV hastening Equity market, arbitrages opportunities globally in siting its facilities to obtain the best possible compromise between socio-political constraints and the technology-/factor abundance-determined potential for economic rents. The paradigm, by pitting nations, precincts, consultants, employees, technology suppliers and service providers, to compete against one another, whittles down vendor returns, corporate taxes, wages, employee pension obligations, and ESH obligations down to the barest minimum, and risks turning the investment more a long-run loss to the society and environment for the supra-economic, short-term rents it generates for the capitalists. This phenomenon is evident in bankruptcies, involuntary mergers, mass-layoffs, under-funded pension plans, and in the various tax, land and regulatory give-aways that short-sighted political governments resort to, to attract investment and jobs to their jurisdictions. This trend has enlarged over the years with indiscriminate globalization brought about by the free flow of capital, and with the growth of an open, tariff-attenuated international trade economy. The intense-competition in multi-laterally-competed trade exports feed back to competition in wages, in raw materials, and every other factor of production at manufacturing centers in exporting nations. In turn, this incentivizes labor-saving automation, scale-based mergers, and politically-leveraged raw material sourcing deals with trade-dependant precinct and national Governments. Further, national and precinct governments compete multi-laterally to shrink corporate taxes and ESH-regulations to attract employment-generating investments by expanding economic rents to producers while shrinking returns to passurance and society. Further, the Nominal paradigm exploits every increment in private efficiency, for example automobile efficiency, to expand nominal activity, here, VMT, that negates the efficiency improvement and worsens public damage. A continuation of this trend is likely to exacerbate damage to the Commons – as evident in rising CO2 concentrations, flooding, risks to island nations from rising seas, ever-expanding solid waste landfills, to name a few. It is imperative upon political governments and multi-lateral institutions to realize the enormity of irreversible damages imposed on the peoples of different nations and societies due their lack of cognizance and inaction.

The framework suggested here anticipates some, if not most ‘mal’incentives inherent in the Nominal paradigm. By requiring externality-anticipating SESH Cause Bonds, and consequent SESH-enhancements as pre-requisite for IMF-WB-sponsored appreciation of nominal equity markets in nations around the world, the proposed design alters the incentives facing the widest section of investors – small and large in the market - within each nation, and globally, across nations. Capitalists and investors, focused exclusively on economic rents from projected exponential rise in profits due unbalanced, Real-immeserizing nominal economic growth, would, under this strategy, instead pro-actively seek SESH-enhancements from the political government to comply with the Alt-Kuznets, and obtain the favor of IMF-WB funds. Politically-elected governments would set out to resolve the social and environmental excesses of the Nominal even as firms compete globally on basis niche and efficiency. Such incentives, when applied universally, obtain a global nominal economy that competes not on basis outmatching corporate subsidies, competitive labor retrenchment, or exploitation of the Environmental Commons, but on the remediation of its externalities. The Alt-Kuznets, by leveraging the might of the IMF-WB in economic and financial spheres, and enforcing its diktats in the form of a SESH-based investment rule, obtains a larger, more efficient, and SESH-sustainable nominal economy that has the potential to reverse the many excesses of the Nominal paradigm over the past century, and offer the peoples of the world a high-growth path to socio-enviro-economic sustainability.

The Alt-Kuznets is here ….. Long Live the Kuznets !

1�The SESH (Social-Environmental-Safety-Health) Public Criterion, as expressed in SESH (NAV) Scores that are incremented by an underlying, pro-active SESH Cause Bond, would be a globally-consistent, measurable and verifiable set of social, environmental and health indicators that include those recorded by the UNEP and the UN-MDG programs.