Categorized | Features, General

De Ole Dawg – Part10: Economics, Sustainability and Development

What about economics, sustainability and development?

BRADES, Montserrat, Nov 26, 2015 – As we continue thinking about Montserrat’s development and policy issues, again and again, Economics comes to the fore. Likewise, an environmental disaster forever changed our situation from the evening of July 18, 1995 on. This showed that the “all eggs in the Plymouth basket” development track  from the 1960’s on was not sustainable.

Now, topics such as economics, sustainability and development, policy-making etc. are notoriously hard to understand. However, if we are to be effective as citizens, civil servants and leaders, we must have a good grip on basic points. Otherwise, we will be easy meat for every gust of clever ear-tickling talk that pushes us first one way then the next. Until, we end up a shipwreck.

So, lion no. 7 is improving our understanding of economics, sustainability and development.

A good definition of Economics comes from Investopedia: “[the study of] how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants.”  The point being, what is the most reasonable choice, why, and what is the balance of short- and long- term costs and benefits.   Thus, too, the opportunity cost concept that the real cost of doing A is the next best option, B, that has to be given up to do A. So, the benefits of A across time should outweigh what is given up. Where, the long term is where sustainability comes into play: we should seek to better and more fairly meet our needs today and tomorrow, bearing in mind how what we do interacts with our natural, socio-cultural and economic surroundings – i.e. our environment.

So, already, we see that we need to think about alternative courses of action, and their possible consequences (especially for those who are most vulnerable if things go sour), both now and for our grand children etc. We cannot blindly count on luck, and “big man X wants us to do A,” is not good enough to make a sound decision.

In economics, markets are key. For some good or service G, there are those willing and able to pay for it – demand (d), and there are those willing to put in the investment, management and work to provide it – supply (s). As price p rises, more are willing to supply, but fewer can buy, so there is often a level – the market price – where quantities demanded and supplied are equal. Competition to buy / sell will tend to push prices up/ down.

We can then “add up” the markets across an economy as a whole – this is now macroeconomics – and see that we can measure the overall (“aggregate”) demand and supply for goods and services, at various price levels. (Inflation, then, is a trend for price level to rise.) Let’s use a diagram that shows aggregate supply (AS) vs aggregate demand (AD) and helps us see how we get overall output, Gross Domestic Product (GDP) and price level:

gdp

Here, we see how individual markets “add up” across an economy to give output Y (= GDP) at price levels P.  At low levels of output, an economy is in recession, and the right kind of stimulus can boost demand, getting it to grow again. This is how we tend to understand what happened in the 1930’s with the Great Depression. But also, as a growing economy reaches its capacity Y* and saturates, further attempted stimulus will obviously bid up prices for things that are in tight supply, leading to slowed growth or stagnation plus inflation (= Stagflation).

This situation can also happen from the supply side of the economy. For, oil price shocks or disasters that knock out a big slice of the productive capacity of an economy can push in the AS curve to the left, stagnating an economy which will also be prone to inflation. This happened in the 1970’s and may well have helped trigger the 2008 – 9 global crisis.  In Montserrat’s case when the volcano hit, GDP shrank to half its previous level, and we lost (or lost access to) our sea port, air port, power plant, etc. That’s why we are now dependent on the UK Government to fund about 55% of our recurrent budget.

So, for our economy to grow, we will need to create room for growth, by putting back in key productive infrastructure and building the capabilities of our work-force, also attracting investment. So then, it is no surprise that the DFID 2012 business case for MDC said:

“The principal barrier to economic growth and development on the island is poor physical access. This is particularly the case for sea access. The current ferry service from Antigua is not suitable for the development of the cruise day tour market or facilitating trade. The jetty and port facilities also have limited capacity and due to adverse weather conditions significant downtime that limits commercial and cruise ship use . . . .  Initial and catalytic investments are therefore required by the public sector and these need to be properly designed and implemented . . .”

Three years later, we still need to fix the access problem, and to restore investor confidence that our economy has serious growth opportunities.

Another lesson lurks. As we look around, we see the remains of various windmills, from the days when a sugar plantation was a big chance to make money. But circumstances changed (especially after the abolition of slavery!) and now other industries have taken over: those who do not keep up face the outdated economy problem. So, we have to keep up with the cutting edge – especially in a high tech digital world in which environmental issues are more and more important.

ENDS –

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What about economics, sustainability and development?

BRADES, Montserrat, Nov 26, 2015 – As we continue thinking about Montserrat’s development and policy issues, again and again, Economics comes to the fore. Likewise, an environmental disaster forever changed our situation from the evening of July 18, 1995 on. This showed that the “all eggs in the Plymouth basket” development track  from the 1960’s on was not sustainable.

Now, topics such as economics, sustainability and development, policy-making etc. are notoriously hard to understand. However, if we are to be effective as citizens, civil servants and leaders, we must have a good grip on basic points. Otherwise, we will be easy meat for every gust of clever ear-tickling talk that pushes us first one way then the next. Until, we end up a shipwreck.

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So, lion no. 7 is improving our understanding of economics, sustainability and development.

A good definition of Economics comes from Investopedia: “[the study of] how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants.”  The point being, what is the most reasonable choice, why, and what is the balance of short- and long- term costs and benefits.   Thus, too, the opportunity cost concept that the real cost of doing A is the next best option, B, that has to be given up to do A. So, the benefits of A across time should outweigh what is given up. Where, the long term is where sustainability comes into play: we should seek to better and more fairly meet our needs today and tomorrow, bearing in mind how what we do interacts with our natural, socio-cultural and economic surroundings – i.e. our environment.

So, already, we see that we need to think about alternative courses of action, and their possible consequences (especially for those who are most vulnerable if things go sour), both now and for our grand children etc. We cannot blindly count on luck, and “big man X wants us to do A,” is not good enough to make a sound decision.

In economics, markets are key. For some good or service G, there are those willing and able to pay for it – demand (d), and there are those willing to put in the investment, management and work to provide it – supply (s). As price p rises, more are willing to supply, but fewer can buy, so there is often a level – the market price – where quantities demanded and supplied are equal. Competition to buy / sell will tend to push prices up/ down.

We can then “add up” the markets across an economy as a whole – this is now macroeconomics – and see that we can measure the overall (“aggregate”) demand and supply for goods and services, at various price levels. (Inflation, then, is a trend for price level to rise.) Let’s use a diagram that shows aggregate supply (AS) vs aggregate demand (AD) and helps us see how we get overall output, Gross Domestic Product (GDP) and price level:

gdp

Here, we see how individual markets “add up” across an economy to give output Y (= GDP) at price levels P.  At low levels of output, an economy is in recession, and the right kind of stimulus can boost demand, getting it to grow again. This is how we tend to understand what happened in the 1930’s with the Great Depression. But also, as a growing economy reaches its capacity Y* and saturates, further attempted stimulus will obviously bid up prices for things that are in tight supply, leading to slowed growth or stagnation plus inflation (= Stagflation).

This situation can also happen from the supply side of the economy. For, oil price shocks or disasters that knock out a big slice of the productive capacity of an economy can push in the AS curve to the left, stagnating an economy which will also be prone to inflation. This happened in the 1970’s and may well have helped trigger the 2008 – 9 global crisis.  In Montserrat’s case when the volcano hit, GDP shrank to half its previous level, and we lost (or lost access to) our sea port, air port, power plant, etc. That’s why we are now dependent on the UK Government to fund about 55% of our recurrent budget.

So, for our economy to grow, we will need to create room for growth, by putting back in key productive infrastructure and building the capabilities of our work-force, also attracting investment. So then, it is no surprise that the DFID 2012 business case for MDC said:

“The principal barrier to economic growth and development on the island is poor physical access. This is particularly the case for sea access. The current ferry service from Antigua is not suitable for the development of the cruise day tour market or facilitating trade. The jetty and port facilities also have limited capacity and due to adverse weather conditions significant downtime that limits commercial and cruise ship use . . . .  Initial and catalytic investments are therefore required by the public sector and these need to be properly designed and implemented . . .”

Three years later, we still need to fix the access problem, and to restore investor confidence that our economy has serious growth opportunities.

Another lesson lurks. As we look around, we see the remains of various windmills, from the days when a sugar plantation was a big chance to make money. But circumstances changed (especially after the abolition of slavery!) and now other industries have taken over: those who do not keep up face the outdated economy problem. So, we have to keep up with the cutting edge – especially in a high tech digital world in which environmental issues are more and more important.

ENDS –