Economy-Watching, USA: Global Supply Chain Pressure Index: April 2023 Update

[from the Federal Reserve Bank of New York]

A new reading of the Global Supply Chain Pressure Index has been posted.

Estimates for March 2023

  • Global supply chain pressures decreased again in March, falling from 0.28 to 1.06 standard deviations below the index’s historical average.
  • There were significant downward contributions by many of the factors, with the largest negative contributions from European Area delivery times, European Area backlogs, and Taiwanese purchases.
  • The GSCPI’s recent movements suggest that global supply chain conditions have largely normalized after experiencing temporary setbacks around the turn of the year.

The GSCPI compiles more than two dozen metrics across seven economies—data on global transportation costs and regional manufacturing conditions—to track shifts in supply chain pressures from 1997 to the present.

The GSCPI is updated regularly at 10 AM ET on the fourth business day of each month.

The GSCPI is a product of the Federal Reserve Bank of New York’s Applied Macroeconomics and Econometrics Center.

View the index.

Economy-Watching, USA: First-Quarter GDP Growth Estimate Decreased

[from the Federal Reserve Bank of Atlanta]

GDPNow

First-Quarter GDP Growth Estimate Decreased

On April 5, the GDPNow model estimate for real GDP growth in the first quarter of 2023 is 1.5 percent, down from 1.7 percent on April 3.

The next GDPNow update is Monday, April 10.

Want to see even more economic data? The Atlanta Fed’s EconomyNow app will put GDPNow and all its data tools right in your hands. Download it today to see the latest data on inflation, growth, and the labor market.

Facing the Global South: Building a New International System by Yang Ping

“If you raise [the development of the BRI] to the strategic level, there are countries where … you will have to lose money and there are countries where you will be free to make money.”

by Thomas des Garets Geddes, Sinification

Dear Everyone,

How to respond to the growing political divide between China and the West marked by partial decoupling, security alliances, and the risk of sanctions, amongst other things, continues to be a major topic of discussion among China’s intellectual elite. As already evidenced in previous editions of this newsletter, opinions vary considerably. Those presented here so far have ranged from Da Wei (达巍) stressing the importance of preserving if not strengthening ties with the West and Shen Wei (沈伟) arguing in favor of reforming the WTO and building up a network of free trade agreements to Ye Hailin (叶海林) emphasizing the need for China to demonstrate its military might to demobilize U.S. allies and Lu Feng (路风) calling for self-reliance and greater assertiveness in the field of tech. A certain amount of overlap certainly exists among these perspectives but the differences are nonetheless striking.

Today’s edition of Sinification looks at a speech made last month by Yang Ping (杨平), head and editor-in-chief of the highly regarded Beijing Cultural Review (文化纵横, hereafter BCR). Yang is also director of the Longway Foundation (修远基金会) which publishes BCR. The foundation describes its publication as “the most influential magazine of intellectual thought and commentary in China” and sees itself as having a key role in helping shape the direction of intellectual debates in China (“议题的设置就是意识形态斗争成功的一半”). Indeed, BCR often republishes old articles at key junctures as so often highlighted by David Ownby’s wonderful Reading the China Dream.

The following are excerpts from an edited transcript of a speech by Yang made at an event hosted by Renmin University’s Chongyang Institute for Financial Studies, which was attended by China’s Vice-minister of foreign affairs Xie Feng (谢锋). In his speech, Yang advocates building a new international system led by countries in the Global South (which, of course, includes China) rather than the West. His ideas are not particularly novel but are nevertheless noteworthy in that they represent yet another viewpoint in the ongoing debate over how China should respond to the increasing tensions that characterize its relations with the U.S. and other Western countries. Next week, I will be sharing a somewhat longer piece that proposes a way of protecting China from the growing threat of Western sanctions.

Yang’s speech in a nutshell:

  • Capitalist politics” are no longer in line with “capitalist economics.” The former now undermines globalization, while the latter supports it.
  • Sanctions, export controls, friend-shoring and alliance-building are damaging the world economy and further alienating China from the current U.S.-led international order.
  • China must respond to this growing trend by building a “new type of international system” with other countries in the Global South.
  • BRI projects should be increasingly focused on achieving this goal and thus allow more room for loss-making endeavors.

Capitalist politics ≠ Capitalist economics

“Since 2022 and the Russo-Ukrainian conflict, our main focus and topic of discussion has been China’s construction of a new type of international system.

“The most important feature of today’s world is the beginning of a separation between capitalist politics and capitalist economics. The capitalist political order and the capitalist economic order do not support each other [any longer].

“We have witnessed two typical manifestations of the separation of politics and the economy and the impact of politics on the economy:

  1. The first is the conflict between Russia and Ukraine. The sanctions imposed on Russia by the United States and the West have reached unthinkable, abominable [令人发指] and unimaginable proportions. Under established international rules, it was understood that such sanctions could not possibly occur, but now they have. These include the fracturing of the financial system, the expropriation and seizure of Russian private assets and the freezing of Russian foreign exchange reserves. These are all abominable and unimaginable forms of confrontation. At the same time, the Russo-Ukrainian conflict has led to serious disruptions in global food and energy systems and supply chains, with massive food ‘shortages’ and soaring food prices, particularly in developing countries. Sanctions and political repression [政治打压] have severely disrupted the [world’s] economic order.
  2. The second is the conflict between the U.S. and China. Since the Trump era, the U.S. has been engaged in a trade war against China, mainly by raising tariffs. Basically, this was simply about balancing trade [with China] and used mainly economic means. But under Biden, it [has become] a war that mixes politics with economics. Biden’s strategy towards China can basically be summed up in just a few words: one, friend-shoring, [i.e.] only allowing friendly countries into [parts of] its supply chains; two, alliance politics, [i.e.] continuously forging an alliance system involving NATO, the European Union, Japan, AUKUS and the four Asia-Pacific countries [I assume he is referring to South Korea, Japan, New Zealand and Australia taking part for the first time in a NATO summit last year] and constantly opposing China [不断应对中国]; three, its so-called ‘precision strikes’, [i.e.] its radical crackdown on China’s high tech [industry], especially our chip industry.”

China is being pushed out of the U.S.-led international system

“The information I have seen so far is that the number of Chinese companies included in the U.S.’s ‘entity list’ has risen from 132 under Trump to over 530 now. The scope of such point-to-point [点对点] precision strikes is constantly expanding. With such a political impact on the economy, we can feel the [world’s] economic order being disrupted across the board. The world is moving inexorably in the direction of decoupling. The phenomenon of politics affecting the economy and the capitalist political order no longer upholding the capitalist economic order are extremely striking.

“In such a context, the challenges now facing China are extremely serious and varied. We have the pressures of dealing both with containment in the Indo-Pacific and with the U.S.-led politics of alliances across the world. More importantly and fundamentally China faces the strategic task of building a new type of international system [新型国际体系] … The existing Western-dominated international system used to be one in which we tried hard to blend [so as] to become one with it. During this process, we [sought to] absorb the West’s advanced technologies and management [practices] and thus complete our mission of industrialisation and modernization.

“But once you enter the existing international system, he [who is already inside] does not want to play with you, and even wants to drive you back out. He wants to divide both supply chains and the economic system into two parts [搞成两套] and desperately wants to contain and suppress you. This is not something that can be determined by your own subjective preferences. He has made up his mind: you have already become his ‘fated opponent’ [命定的对手]. He has to suppress you and drive you out of the existing system.”

Building a new international system with the Global South

“It is at this point that China is faced with the task of constructing a new type of international system that is not dominated by the West. In today’s so-called strategic quadrangle consisting of the U.S., Europe, Russia and China, how to construct such an international system appears particularly difficult [逼庂 literally means ‘narrow’ or ‘cramped’ rather than ‘difficult’].

“But if we look a little further south, we will find a vast number of developing countries, the Third World and the countries of the global South. They should be our strategy’s depth [我们的战略纵深]. That is to say, [we should] build a new type of international relations and a new type of international system that has strategic depth and in which China and the countries of the global South are jointly integrated. [This] is, in my view, an important strategic task for China’s international relations in the coming decades.”

BRI projects: Strategy trumps profitability

“For China today, especially for businesses and governments at all levels [within China] that are currently working hard to develop BRI trade, there is a very important point to which they should be alerted or reminded about: the development of the BRI has to go beyond mere business, beyond the general export of [China’s excess] production capacity, beyond the partial thinking of industry and the partial thinking at the regional level, or the simple economic way of thinking of business. The development of the BRI should be considered at the strategic level. That is, it should be included into China’s strategy when thinking about Africa, South America, Southeast Asia and Central Asia.

“If you raise [the development of the BRI] to the strategic level, there are countries where you won’t be able to make money and will have to lose money, and there are countries where you will be free to make money. You have to unite the two within your organic strategy.

“The strategic task of building a new type of international system is, in my view, a strategic proposition that Chinese think tanks and research institutes should pay very close attention to with regards to international relations.

“Time is limited today. I just wanted to make a start here. I hope to receive your corrections and criticisms. Thank you!”

[Subscribe to Sinification]

The recessive importance of the Global South was previously explored by Richard and his partner Larry, with input from Supratik Bose, many decades ago as shown here.

Economics-Watching: FRBSF Economic Letter

[from the Federal Reserve Bank of San Francisco]

Are Inflation Expectations Well Anchored in Mexico?

by Remy Beauregard, Jens H.E. Christensen, Eric Fischer and Simon Zhu

Price inflation has increased sharply since early 2021 in many countries, including Mexico. If sustained, high inflation in Mexico could raise questions about the ability of its central bank to bring inflation down to its 3% inflation target. However, analyzing the difference between market prices of nominal and inflation-indexed government bonds suggests investors’ long-term inflation expectations in Mexico are close to the central bank’s inflation target and are projected to remain so in coming years.


Inflation has risen substantially in many countries, including Mexico, since early 2021, driven in part by unique factors related to the COVID-19 pandemic. Sustained elevated inflation could be particularly challenging for inflation-targeting central banks in emerging economies given their higher macroeconomic uncertainty and greater sensitivity to external shocks compared with more developed economies. To examine this risk for a representative emerging economy affected by COVID-era disruptions in much the same way as the United States, we focus on Mexico, which has conducted monetary policy since 2002 according to an inflation targeting regime with a target rate for consumer price inflation of 3% per year.

In this Economic Letter, we assess whether recent higher inflation is leading businesses and households in Mexico to expect inflation to remain high over the long run. Specifically, we focus on what rising market-based measures of inflation compensation may imply about bond investors’ outlook for inflation. The rise in inflation compensation since spring 2021 could reflect three factors: an increase in investorsinflation expectations, an uptick in the premium investors demand for assuming inflation risk, or changes in other risk and liquidity premiums. We explore the relative importance of each of these factors using a novel dynamic term structure model of nominal and inflation-adjusted yields described in Beauregard et al. (2021, henceforth BCFZ). Overall, our results for five-year inflation expectations five years from now suggest Mexican bond investors’ long-term inflation expectations have been little affected by the recent rise in inflation. Instead, the rise in inflation compensation reflects a notable uptick in the inflation risk premium to the high end of its historical range. This suggests that, despite inflation expectations being little changed on average, some investors are particularly concerned about the risk that inflation will remain above expected levels.

The recent rise in Mexican inflation

Figure 1 shows the year-over-year change in the Mexican consumer price index (CPI) measured both by the headline CPI (green line) and the more stable core CPI (blue line) that strips out volatile food and energy prices. Also shown with a horizontal gray line is the 3% inflation target of the nation’s central bank, the Bank of Mexico.

Figure 1: Mexican consumer price index inflation
Mexican consumer price index inflation
Source: Instituto Nacional de Estadística y Geografía.

We note that Mexican CPI inflation has averaged somewhat above the Bank of Mexico’s target since its adoption in 2002. More importantly, CPI inflation in Mexico appears to have become more volatile and somewhat higher over the past five years. Although previous research by De Pooter et al. (2014) found inflation expectations in Mexico to be well anchored, the significant global economic dislocations caused by the coronavirus pandemic and related inflationary pressures could impact inflation expectations of businesses and households.

To assess the persistence of the recent rise in Mexican inflation, we turn to financial market data, which reflect forward-looking expectations among a large and diverse group of investors and financial market participants. Specifically, we consider prices of conventional fixed-coupon bonds that pay a nominal interest rate and inflation-indexed bonds that pay a real interest rate because their cash flows are adjusted with the change in the CPI and therefore maintain their purchasing power. Both types of securities are issued and guaranteed by the Mexican government.

The difference between nominal and real yields for bonds of the same maturity is known as breakeven inflation (BEI). This represents a market-based measure of inflation compensation used to assess financial market participants’ inflation expectations. Figure 2 shows BEI rates at different maturities, meaning annual average rates of inflation compensation between now and maturity, from 1 to 10 years at the end of March 2021 (green line) and at the end of November 2022 (blue line). The slightly upward-sloping BEI curve of close to 3% in 2021 contrasts with the higher downward-sloping BEI curve in 2022.

Figure 2: BEI curves for 1-year to 10-year Mexican bond maturities
BEI curves for 1-year to 10-year Mexican bond maturities
Source: Authors’ calculations using bond prices from Bloomberg.

The increase for shorter maturities, the left end of the 2022 BEI curve, is closely tied to the current high level of inflation and suggests inflation may remain elevated for some time. In contrast, the increase at longer maturities, the right end of the 2022 BEI curve, suggests that investors’ longer-term inflation expectations may be drifting above the Bank of Mexico’s inflation target. To better understand the shape and sources of variation of the BEI curve we use a yield curve model.

A yield curve model of nominal and real yields

Market-based measures of inflation compensation such as BEI rates contain three components. First, they include the average CPI inflation rate expected by bond investors, which is the focus here. Second is an inflation risk premium to compensate investors for the uncertainty of future inflation. This premium is embedded in nominal yields that provide no inflation protection. Third is the difference in relative market liquidity between standard fixed-coupon and inflation-indexed bonds. As discussed in BCFZ, both of these types of Mexican bonds are less liquid than U.S. Treasuries, and their prices therefore contain a discount to compensate investors for their liquidity risk. Neither the inflation risk premium nor the liquidity premiums are directly observable and must therefore be estimated.

To adjust for these challenges, we first use the nominal and real yields model developed in BCFZ to identify liquidity premiums in standard fixed-coupon and inflation-indexed bond prices as a function of the time since issuance and the remaining time to maturity. The time since issuance serves as a proxy for declining liquidity as, over time, a larger fraction of bonds gets locked into buy-and-hold strategies. We refer to the observed BEI net of estimated liquidity premiums as the adjusted BEI. In a second step, we then separate adjusted BEI into components representing investorsinflation expectations using a formula based on the absence of bond market arbitrage opportunities and the residual inflation risk premium.

Results

To assess whether investorsinflation outlook has fundamentally changed, we follow De Pooter et al. (2014) and examine the five-year forward BEI rate that starts five years ahead, denoted 5yr5yr BEI. This is a horizon sufficiently long into the future that most transitory shocks to the economy can be expected to have vanished. Hence, the embedded inflation expectations are presumably less affected by current high inflation and pandemic-related transitory conditions and can therefore speak to the question about the anchoring of inflation expectations in Mexico.

Figure 3 shows the breakdown of 5yr5yr BEI into its various components according to our model. The dark blue line is the observed BEI, and the red line is the estimated adjusted BEI without liquidity risk premiums or other residual disturbances. The difference between these two measures of BEI—the yellow shaded area—represents the model’s estimate of the net liquidity premium or distortion of the observed BEI series due to risk premiums in both nominal and inflation-indexed bond prices. The adjusted BEI is entirely above the observed BEI, suggesting the liquidity risk distortions are systematically larger in the inflation-indexed bond prices, consistent with similar evidence from the U.S. Treasury market (Andreasen and Christensen 2016). Note that the net BEI liquidity premium widened around the financial turmoil in spring 2020 at the start of the pandemic and remains elevated.

Figure 3: Components of 5yr5yr breakeven inflation for Mexico
Components of 5yr5yr breakeven inflation for Mexico
Source: Survey forecasts from Consensus Economics and authors’ calculations using bond prices from Bloomberg.

The model also allows us to break down the adjusted BEI into an expected inflation component (light blue line) and the residual inflation risk premium (green line). Also shown is the Bank of Mexico’s 3% inflation target (gray horizontal line). For comparison, the figure also shows the 5yr5yr expected CPI inflation in Mexico reported semiannually in the Consensus Forecasts surveys (dark blue squares). We note that both observed and adjusted BEI have trended higher since the start of the pandemic in early 2020. Importantly, the breakdown indicates that long-term expected inflation in Mexico has remained stable, slightly above the 3% inflation target. As a result, the increase in BEI can be attributed to the inflation risk premium, which is at the high end of its historical range towards the end of our sample. Given the elevated levels of current inflation, this suggests some investors are concerned that inflation could remain elevated for longer than currently anticipated.

This raises the question of whether long-term inflation expectations in Mexico are likely to remain anchored near their current level going forward. To assess this risk, we simulate 10,000-factor paths over a three-year horizon using the estimated factors and factor dynamics as of November 2022—that is, the simulations are conditioned on the shapes of the nominal and real yield curves and investors’ embedded forward-looking expectations as of November 2022. These simulated factor paths are then converted into forecasts of 5yr5yr expected inflation. Figure 4 shows the median projection (solid green line) and the 5th and 95th percentile values (dashed green lines) for the simulated 5yr5yr expected inflation over a three-year horizon.

Figure 4: Three-year projections of 5yr5yr expected inflation, Mexico
Three-year projections of 5yr5yr expected inflation, Mexico
Source: Authors’ calculations.

Our model projections indicate that long-term inflation expectations are likely to deviate only modestly from their current level, consistent with the variation of the historical estimates back to 2009. Overall, our findings represent tangible evidence that long-term inflation expectations remain well-anchored in Mexico despite the recent rise in inflation.

Conclusion

Global inflation pressures in the aftermath of the pandemic have raised fears about a sustained increase in the level of inflation around the world, which could be particularly challenging for developing economies with monetary policy guided by an inflation target. In this Letter, to assess this risk for a major emerging economy with an established inflation target, we examine the variation in Mexico’s nominal and inflation-indexed bond prices, while accounting for their respective liquidity risk premiums. This allows us to estimate Mexican bond investors’ inflation expectations and associated risk premiums. The results reveal that the inflation risk premium has pushed up Mexican BEI rates in recent years, while investors’ long-term inflation expectations have remained stable near the Bank of Mexico’s inflation target despite the rise in inflation.

The policy path needed to keep inflation expectations anchored in a situation with highly elevated inflation may involve tradeoffs. The Bank of Mexico responded early and forcefully to inflation pressures starting in June 2021 and has indicated further tightening of the policy rate would likely be appropriate to bring inflation back down to target over the medium term. This could lower economic growth in Mexico in both 2022 and 2023. On the other hand, history shows that it may be difficult and costly to reverse extended departures from announced inflation targets. Thus, it will be important for central banks with inflation-targeting frameworks to monitor measures of long-term inflation expectations in the current situation.

Remy Beauregard
Economics Ph.D. student, University of California at Davis

Jens H.E. Christensen
Research Advisor, Economic Research Department, Federal Reserve Bank of San Francisco

Eric Fischer
Financial modeling and quantitative analytics principal, Markets Group, Federal Reserve Bank of New York

Simon Zhu
Economics Ph.D. student, University of Texas at Austin

References

Andreasen, Martin M. and Jens H.E. Christensen. 2016. “TIPS Liquidity and the Outlook for Inflation.” [PDFFRBSF Economic Letter 2016-35 (November 21).

Beauregard, Remy, Jens H.E. Christensen, Eric Fischer, and Simon Zhu. 2021. “Inflation Expectations and Risk Premia in Emerging Bond Markets: Evidence from Mexico.” [PDF] FRB San Francisco Working Paper 2021-08.

De Pooter, Michiel, Patrice Robitaille, Ian Walker, and Michael Zdinak. 2014. “Are Long-Term Inflation Expectations Well Anchored in Brazil, Chile, and Mexico?” [PDFInternational Journal of Central Banking 10(2), pp. 337–400.

[Archived PDF]

Economics-Watching: FedViews for January 2023

[from the Federal Reserve Bank of San Francisco]

Adam Shapiro, vice president at the Federal Reserve Bank of San Francisco, stated his views on the current economy and the outlook as of January 12, 2023.

  • While continuing to cool over the last several months, 12-month inflation remains at historically high levels. The headline personal consumption expenditures (PCE) price index rose 5.5% in November 2022 from a year earlier. This marks a decline in inflation to a level last observed in October 2021, but still well above the Fed’s longer-run goal of 2%. A portion of the inflation moderation is attributable to recent declines in energy prices. Core PCE inflation, which removes food and energy prices, has shown less easing.
  • Owing to fiscal relief efforts and lower household spending over the course of the pandemic, consumers accumulated over $2 trillion dollars in excess savings, based on pre-pandemic trends. Since then, consumers have drawn down over half of this excess savings which has helped support recent growth in personal consumption expenditures. A considerable amount of accumulated savings remains for some consumers to support spending in 2023.
  • In the wake of the pandemic, consumer spending patterns shifted away from services towards goods. While there appears to be some normalization of spending behavior, this shift has generally persisted. Real goods spending remains significantly above its pre-pandemic trend, driven by strong demand for durables such as furniture, electronics, and recreational goods. Spending on services has shown a resurgence but remains below its pre-pandemic trend.
  • Supply chain bottlenecks for materials and labor remain a constraint on production, although there are some recent signs of easing. The fraction of manufacturers who reported operating below capacity due to insufficient materials peaked in late 2021 and has moderately declined over the past year. However, the fraction of manufacturers reporting insufficient labor has persisted at high levels.
  • The labor market remains tight, despite some signs of cooling. The number of available jobs remains well above the number of available workers, although vacancy postings have been trending down in recent months. The tight labor market has put continued upward pressure on wages and labor market turnover.
  • A decomposition of headline PCE inflation into supply– and demand-driven components shows that both supply and demand factors are responsible for the recent rise in inflation. The surge in inflation in early 2021 was mainly due to an increase in demand-driven factors. Subsequently, supply factors became more prevalent for the remainder of 2021. Supply-driven inflation has moderated significantly over recent months, while demand-driven inflation remains elevated.
  • The Federal Open Market Committee (FOMC) raised the federal funds rate by 50 basis points at the December meeting to a range of 4.25 to 4.5%. This cycle of continued rate increases since March of last year represents the fastest pace of monetary policy tightening in 40 years. The increase in the federal funds rate has been accompanied by a gradual reduction in the size of the Federal Reserve’s balance sheet.
  • Economic activity in sectors such as housing, which is sensitive to rising interest rates, has slowed considerably in recent months. Housing starts have fallen steadily over the past year, as have other housing market indicators, such as existing home sales and house prices.
  • Although the labor market is currently very strong, financial markets are pointing to some downside risks. Namely, the difference between longer- and shorter-term interest rates has turned negative, which historically tends to occur immediately preceding recessions. It remains unclear whether lower longer-term yields are indicative of anticipated slower growth or lower inflation.
  • Short-term inflation expectations remain elevated relative to their pre-pandemic levels in December 2019. Consumers are expecting prices to rise 5% this year, while professional forecasters are expecting prices to rise 3.5%. Longer-term inflation expectations remain more subdued, indicating that both consumers and professionals believe inflation pressures will eventually dissipate.
  • Rent inflation is expected to remain high over the next year. The prices for asking rents have grown quite substantially over the last two years. As new leases begin and existing leases are renewed, these higher asking rents will flow into the stock of rental units, putting upward pressure on rent inflation.
  • We are expecting inflation to moderate over the next few years as monetary policy continues to restrain demand and supply bottlenecks continue to ease. We anticipate that it will take some time for inflation to reach the Fed’s longer-run goal of 2%.
Inflation is cooling, but remains very high
Savings are boosting consumer demand
Goods consumption remains elevated
Supply shortages are prevalent, but easing
Labor market remains tight, but is cooling
Both supply and demand drive inflation
Monetary policy tightening is having real effects
Yield curve is inverted, signaling recession risk
Short-term inflation expectations remain elevated
High rent inflation is in the pipeline
Inflation likely to remain above 2% for some time

[Archived PDF]

Read other issues from FedViews.

Globalization and Its Nuances

The PBS TV program History Detectives had an episode entitled “Atocha Spanish Silver” where the wreck of the Spanish ship Atocha was described like this:

“In 1985, one of the greatest treasure discoveries was made off the Florida Keys, when the wreck of the Spanish ship Atocha was found. On board were some forty tons of silver and gold, which in 1622 had been heading from the New World to the Spanish treasury as the means to fund the Thirty Years’ War.”

Is this an obvious case of globalization? What about Marco Polo? RomeHan dynasty China trade in silks? Silk Road and Samarkand? Colombus? Magellan? Vasco da Gama?

All of these cases constitute a kind of harmless kind of “pop globalization” based on exotic voyages and travels.

Consider another such example, perhaps more academic:

“About the middle of the sixteenth century Antwerp reached its apogee. For the first time in history there existed both a European and a world market; the economies of different parts of Europe had become interdependent and were linked through the Antwerp market, not only with each other but also with the economies of large parts of the rest of the world. Perhaps no other city has ever again played such a dominant role as did Antwerp in the second quarter of the sixteenth century.”

(Europe in the Sixteenth Century, Koenigsberger and Mosse, Holt Rinehart Publishers, 1968, page 50)

Debt repudiations in several places in the 1550s are described like this:

“This caused the first big international bank crash, for the Antwerp bankers now could not meet their own obligations.”

(Europe in the Sixteenth Century, Koenigsberger and Mosse, Holt Rinehart Publishers, 1968, page 51)

This sounds like some kind of identifiably global period.

Actually, modern historians define globalization as “price convergence” (i.e., wheat has now a unified “world price,” implying a world market). This rigorous definition is confirmed by and also shows up in the data in the 1820s and may or may not be prefigured by all the Marco Polo and Atocha silver stories, mentioned above.

These episodes in history are not there yet.

One sees wheat prices and other commodity prices converging in the 1820s and thereafter based on railroads, steamships and telegrams.

The classic in this kind of analysis is:

Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy, by Kevin O’Rourke and Jeffrey Williamson.

Kevin O’Rourke and Jeffrey Williamson present a coherent picture of In Globalization and History, Kevin O’Rourke and Jeffrey Williamson present a coherent picture of trade, migration, and international capital flows in the Atlantic economy in the century prior to 1914—the first great globalization boom, which anticipated the experience of the last fifty years. The authors estimate the extent of globalization and its impact on the participating countries, and discuss the political reactions that it provoked. The book’s originality lies in its application of the tools of open-economy economics to this critical historical period—differentiating it from most previous work, which has been based on closed-economy or single-sector models. The authors also keep a close eye on globalization debates of the 1990s, using history to inform the present and vice versa. The book brings together research conducted by the authors over the past decade—work that has profoundly influenced how economic history is now written and that has found audiences in economics and history, as well as in the popular press.

(book summary)

In everyday language, we associate the word globalization with some ever-increasing Marco Polo phenomena. While that’s not entirely wrong, globalization in the more technical sense begins to show up in the data only from the 1820s. At this point, we begin to see the convergence of worldwide wheat prices, for example. This makes the world, for the first time, a global “store” with unified prices. Here is the technical beginning of globalization. The years 1870-1914 are subsequently the first real era of modern globalization and represent a kind of “take-off” from the first stirrings of the 1820s. World Wars I & II might be seen as globalization backlash.

At this moment in world history, whether Putin’s invasion of Ukraine will constitute a new wave of deglobalization remains to be seen.

From ASEAN and G20 to APEC, as World Leaders Meet in Person Again, 3 Reasons to Root for Multilateralism

By Wang Huiyao | Founder of the Center for China and Globalization (CCG)

Over the past two weeks, Asia has played host to the most intense sequence of multilateral summits since the pandemic began, as national leaders gathered for meetings organized by ASEAN, the G20 and APEC. Although overshadowed by geopolitical tensions, the meetings marked a welcome return to in-person summit diplomacy, and the better-than-expected outcomes show hope yet for multilateralism.

The conclaves began in Phnom Penh with the annual summit of the Association of Southeast Asian Nations. At the first of such in-person events in almost three years, ASEAN leaders took the positive step of agreeing in principle to admit East Timor as the 11th member of the organization.

As leaders moved on to Bali for the Group of 20 summit, expectations were low after ministerial meetings in the run-up had failed to produce consensus. Earlier in the year, given fractures in the wake of Russia’s invasion of Ukraine, there was a question mark over whether the G20 could even go ahead or survive in its existing form.

In the end, the summit surpassed expectations by producing a joint declaration after intense negotiations, with leaders finding the compromises necessary to unite in declaring that “today’s era must not be of war” and pledging to uphold the multilateral system.

The summit also saw a positive face-to-face meeting between China’s President Xi Jinping and U.S. President Joe Biden, their first as leaders, signaling a willingness to halt the downward trajectory of China-U.S. relations.

In Bangkok, the 21 leaders of the Asia-Pacific Economic Cooperation forum also pledged to uphold and strengthen the rules-based multilateral trading system. Importantly, the group agreed on a multi-year work plan for an Asia-Pacific free trade area.

Reflecting on these three summits, three takeaways give reason for cautious optimism that multilateralism can yet be revived and play a major role in solving our challenges.

First, and perhaps most obviously, the return of in-person summit diplomacy is a welcome uplift for global cooperation. Virtual formats played a useful interim role at the height of the pandemic but were never a substitute for getting leaders in the same room. That is especially when it comes to interactions on the sidelines, often as important as the main event.

China’s return to diplomacy at the highest level was a further boost, both for the nation and the rest of the world.

In addition to Xi’s highly anticipated meeting with Biden, the Chinese leader met over a dozen other leaders at the G20 and APEC summits, including a warmer-than-expected first meeting with Japanese Prime Minister Fumio Kishida and his first meeting with an Australian prime minister since 2016.

Leaders got to meet their new counterparts for the first time or build on existing relationships, which can only help global cooperation.

The second takeaway is that as grave as our challenges are, the threat of escalating conflict and severe economic pressures on all nations seem to be focusing minds and increasing the willingness to engage and cooperate—out of necessity if nothing else.

The G20 summit was the second major one this year to surpass expectations after the 12th World Trade Organization Ministerial Conference in June surprised observers by agreeing on a plan to reform the organization and its dispute settlement mechanism. The G20 statement reiterated support for this WTO reform plan, which will be critical to get the free trade agenda back on track and provide a much-needed boost for the global economy.

Third, and perhaps most significantly for the long term, the recent summits marked an acceleration of the trend towards multi-polarization in international diplomacy, and in particular, the rising influence of non-aligned “middle powers” to shape multilateral outcomes.

The middle powers represented at ASEAN, the G20 and APEC have huge stakes in avoiding a bifurcation of the global economy that might result from a new cold war. They don’t want to be forced to pick sides and many show a growing willingness and ability to build bridges and restore positive momentum for multilateralism.

Indonesia is a prime example. The country’s strategic heft and non-aligned credibility make it well-placed to bridge different camps. President Joko Widodo made a big political bet on the success of the G20 and has won praise for the deft diplomacy that kept the organization alive and got it to a joint statement.

The Indian delegation reportedly also played a big role in achieving consensus on language in the statement, with the BRICS group (Brazil, Russia, India, China and South Africa)—as well as Indonesia—turning out to be crucial swing voters in securing the joint statement. One Indian official said it was “the first [G20] summit where developing nations shaped the outcome.”

There is scope for this trend to continue next year as middle powers continue to rise in stature, and India and Indonesia take over the presidency of the G20 and ASEAN, respectively. Brazil will host the G20 the year after.

Over in Sharm el-Sheikh at the COP27 UN climate summit, another middle power—the host Egypt—also won praise for helping to shepherd a historic financing deal for poor countries affected by climate change. But the ultimate failure to reach a commitment to phase down fossil fuels was a sobering reminder of the huge difficulties that remain in forging the global consensus needed to overcome our shared challenges.

Education and Circular Causation: Everything Causes Everything Else

The student will have seen in these educational essays the notion of “Husserl’s rhomboid”:

The great philosopher, Edmund Husserl, who died in 1938, would bring a matchbox to class and show his students they see parts and some surface area of the matchbox (a kind of rhomboid, hence the name “Husserl’s rhomboid”) but never all of it at the same time. Students can walk around the matchbox and see facets. They can twirl the matchbox but whatever they do, the students cannot “espy” or glimpse all of it except in their imaginations, once they have been exposed to all of it, side by side, facet by facet.

Gunnar Myrdal, the Swedish economist who won the Nobel Prize in 1974, has something a bit analogous when he speaks of “circular cumulative causation”:

Circular cumulative causation is a theory developed by Swedish economist Gunnar Myrdal in 1956. It is a multi-causal approach where the core variables and their linkages are delineated. The idea behind it is that a change in one form of an institution will lead to successive changes in other institutions. These changes are circular in that they continue in a cycle, many times in a negative way, in which there is no end, and cumulative in that they persist in each round. The change does not occur all at once, which would lead to chaos, rather the changes occur gradually.

Gunnar Myrdal developed the concept from Knut Wicksell and developed it with Nicholas Kaldor when they worked together at the United Nations Economic Commission for Europe.

In the characteristics relevant to an economy’s development process, Myrdal mentioned the availability of natural resources, the historical traditions of production activity, national cohesion, religions and ideologies, and economic, social and political leadership.

He writes:

“The notion of stable equilibrium is normally a false analogy to choose when constructing a theory to explain the changes in a social system.

What is wrong with the stable equilibrium assumption as applied to social reality is the very idea that a social process follows a direction—though it might move towards it in a circuitous way—towards a position which in some sense or other can be described as a state of equilibrium between forces. Behind this idea is another and still more basic assumption, namely that a change will regularly call forth a reaction in the system in the form of changes which on the whole go in the opposite direction to the first change. The idea I want to expound in this book is that, on the contrary, in the normal case there is no such a tendency towards automatic self-stabilisation in the social system. The system is by itself not moving towards any sort of balance between forces, but is constantly on the move away from such a situation. In the normal case a change does not call forth countervailing changes but, instead, supporting changes, which move the system in the same direction as the first change but much further. Because of such circular causation as a social process tends to become cumulative and often gather speed at an accelerating rate…”

(Gunnar Myrdal, Economic Theory and Underdeveloped Regions, Gerald Duckworth, 1957, pp. 12–13)

Myrdal developed further the circular cumulative causation concept and stated that it makes different assumptions from that of stable equilibrium on what can be considered the most important forces guiding the evolution of social processes. These forces characterize the dynamics of these processes in two diverse ways.

These essays that you are reading here are examples encouraging students to put causes in a kind of circle: history exists because economics exists because psychology exists because society exists because history exists. Everything is causing everything else. There isn’t a simple “linear parade.”

By way of contrast, in a person’s private life, he/she went to the dentist before buying the batteries and after having lunch. There’s a timeline of events.

In history, there are such linear timelines also: John Kennedy was assassinated before Donald Trump became president. You had breakfast before dinner. You slept before you got up in the morning.

However, processes (industrialism, migration, urbanization, inflation, etc.) are not analyzable as events like meals and one-time occurrences but are more like getting old or learning a language.

Multi-causal interpretations and circular causes get the student out of simple, “this happened and that happened” in favor of “this and that caused each other, going both ways and interacting with other pressures too.” Everything is causing and altering everything else in all directions.

Climate-Watching: A Collision of Economics and History: In Pennsylvania, the Debate over Climate Is a Bitter One

The state has both a long history of environmental action and a longstanding dependence on fossil fuels.

[from Inside Climate News, by David Shribman, July 17, 2022]

This is a state where natural gas production reached a record 7.1 trillion cubic feet in 2020, the most of any state outside Texas and more than the energy supplied by the state’s nuclear power plants. It’s a state that has 49 underground gas storage sites, more than any other in the nation.  Its coal production ranks behind only Wyoming and West Virginia, and only Wyoming and Texas export more total energy to other parts of the country.

This is also a state where voters will select a new governor and a new senator in November. No state has more vital elections this year; no state has a more complicated and more contentious political culture; and no state provides a better test case for environmental issues and for the future of the climate-change debate.

Welcome to Pennsylvania.

Don’t pack a sweater: the average temperature in the state has risen by 2.8 degrees Fahrenheit since the first Earth Day, in 1970, a bigger increase than the national average.

Don’t breathe deeply: the state’s two major cities, Philadelphia and Pittsburgh, are among the nation’s worst 25 metropolitan areas for annual particulate air pollution

And don’t fail to note the irony—of a state whose economy and lifestyle are unusually dependent on fossil fuels but whose history is unusually rich in the love of nature and the protection of the environment. It is this collision of economics and history that makes environmental issues so emotional, the debate so bitter, the outcome so vital.

Pennsylvania was the home of John J. Audubon, who cultivated in Americans a love of bird life; Rachel Carson, whose clarion call about the environment jolted the country and shook the Kennedy administration; John Chapman, known to school children nationwide as Johnny Appleseed; J. Horace McFarland, a photographer and conservationist celebrated as the Father of the National Park Service; Harold L. Ickes, the pathfinding Secretary of the Interior during the Franklin D. Roosevelt years who shored up perhaps the least effective and most corrupt arm of government while elevating the standards and practices of the National Park Service; and Jerome Rodale, the publisher whose books gave voice to the ethos of sustainable agriculture. And it was the adopted home of William Penn, the founder of the colony that would bear his name and the author of a conservation edict requiring that 20 percent of the land in the Province of Pennsylvania be preserved as wooded. It is no surprise that Pennsylvania was one of the first states to adopt an Environmental Bill of Rights.

But Pennsylvania also was the setting for environmental milestones of an entirely different type. In Donora, a 1948 smog episode killed 20 people and saddled some 40 percent of the town’s population with respiratory disease. A third of a century later, the partial meltdown of Unit 2 of the Three Mile Island nuclear plant in Dauphin County spewed radioactivity into the Harrisburg area. 

The state has had multiple mine disasters and the subsequent contamination of nearby fields and streams. As early as 1883, the explorer and adventure travel writer Willard Glazer wrote that Pittsburgh’s industry was “rendered possible by the coal which abounds in measureless quantity in the immediate neighborhood of the city”—and which contributed to the poisoning of many of the area’s waterways and the despoiling of the air. As late as 1940, 81 percent of the city’s dwellings burned coal. The emissions from the steel mills that helped the country win two world wars and build a robust mass-consumer economy only added to the environmental distress.

This duality is part of, defines all of, Pennsylvania’s natural and political history.  It is embedded in the origin story of Pennsylvania and reinforced in contemporary history. In the WPA Guide to Pennsylvania, the writers of the New Deal-era product of the Federal Writers Project spoke in 1940 of how the main plant of the Pittsburgh Plate Glass Company in Ford City, Pennsylvania, “extends for a mile along Third Avenue in a series of long squat units composed of red brick,” and how the state’s Red Hills were exceeded only in Belgium as “the finest farm section in the world.” Precisely three-quarters of a century ago, in his classic 1947 book, Inside U.S.A., the journalist John Gunther wrote, “To a degree the story of Pennsylvania is the story of iron, coal, and steel. Yet of its 26 million acres, almost half is forest!”

A state known for producing metals and fouling the air is also a state known for hunting grouse, pheasant, deer and bear. A state teeming with factory workers is a state loaded with farmers. A state with two major power centers, Philadelphia and Pittsburgh, is a state where elections often are decided in the agricultural “T” between the two. A state known for building belching steel plants is also a state where, this spring, the owners of Fallingwater, the Frank Lloyd Wright masterpiece, announced that they would install solar panels on the iconic house to offset the power used at the site on Bear Run in Fayette County. And when it comes to environmental issues, Pennsylvania is a state where manufacturing and banking interests have enormous influence in the stately Capitol in Harrisburg, and also a state full of climate activists determined to hold industry in check and battle climate change.

“It is particularly difficult in Pennsylvania to come to any agreement on environmental issues because coal and natural gas have countervailing pressure against attempts to deal with climate change,” said Joel A. Tarr, a Carnegie Mellon University historian who studies the effect of technology on the urban environment. “When you tell people that we have a problem with air quality here, their response is that it used to be much worse. This is a place where we won’t have a water-quality solution until we have a cholera epidemic and we won’t address climate change until we have a major catastrophe that brings it home to Pennsylvania.”

Not that there haven’t been efforts. “A generalized good always takes a back seat to a specific interest,” Gov. Tom Wolf, a Democrat, told me in an interview for this article. “We all benefit from a healthy environment, but there are specific interests that are specifically harmed if we do the right thing. Those specific interests have a lot of power in places like Harrisburg.”

The frequent result of these countervailing impulses and competing interests: paralysis on environmental matters, even as the latest United Nations report, published in April, warned that the world was on a path to a rate of global warming more than double the 2.7-degrees Fahrenheit set as the preferred global goal in 2015 in Paris.

U.N. Secretary General António Guterres warned that the result would be “unprecedented heatwaves, terrifying storms, widespread water shortages and the extinction of a million species of plants and animals,” adding, “This is not fiction or exaggeration. It is what science tells us will result from our current energy policies.”

 A City (and State) in Crisis

As man proceeds toward his announced goal of the conquest of nature, he has written a depressing record of destruction, directed not only against the earth he inhabits but against the life that shares it with him.

Rachel Carson, in Silent Spring

In many ways, Pittsburgh—once smoky, still gritty, now proud of its “eds-and-meds” economy, its edgy youth culture and yeasty locavore restaurant scene—stands as a symbol of Pennsylvania’s environmental and climate crisis.

In the past half century, the city’s average temperature has risen by 2.8 degrees, according to figures compiled by Climate Central—a jarring result for a city where the local political grandees like to emphasize how the area has moved beyond its heavy-manufacturing past. Even with the dramatic decline in the steel industry, Pittsburgh remains the 10th worst city in the country in terms of the presence of short-term particulate matter, and the Breathe Meter indicator that monitors the area’s air has found that 88.5 percent of metro areas in the country have cleaner air. Moreover, a study by Community Partners in Asthma Care found that the rate of asthma in Pittsburgh-area school children is nearly three times the national average.

For generations, no essay on the environment of Pennsylvania was complete without citing Charles Dickens’ characterization of mid-19th century Pittsburgh as “hell with the lid lifted,” or Lincoln Steffens’ complaint about the city’s “smoky gloom” and the “volcanic light upon the cloud of mist and smoke” that appeared with the periodic opening of the blast furnaces. When my wife and I bought a house in Pittsburgh two decades ago—when almost the entire steel industry had closed down in the area—we paid thousands of dollars to have a century’s worth of soot blasted from the brick facade.

All of that before the word “fracking” was introduced into the lexicon of the Pennsylvania debate.

“There is gas in the ground and people have been taking it out of the ground since before I was governor,” Wolf said in the interview. “If I could snap my fingers, we would go completely to wind and solar. I haven’t figured out how to do this. The job is to manage the transition to that energy future.”

Republicans in recent years have sought to deregulate the natural gas industry, expand drilling, ease stipulations for gas permits, open state parklands for energy extraction and open new opportunities for gas pipelines, having the state subsidize them.

“These things were not always Republican goals,” said David Hess, who was secretary of the Pennsylvania Department of Environmental Protection under Republican Governors Tom Ridge and Mark Schweiker. “Republicans once had environmental issues as a pretty high priority. Only recently have Republicans changed their approach. This issue is no longer bipartisan, and that applies especially to climate change. But the only way we can break the loop we are on is to do something different, and yet industry and their Republican allies want more and more. Putting all the stuff in the air from fossil fuels cannot be good, especially when we have clean alternatives.”

And yet the Keystone State has not been entirely a conscientious objector to environmental initiatives.

At a time when there was so much soot in the air that Pittsburgh kept its street lights on all day long and businessmen were forced to change their soiled shirts after returning from a walk to a lunch appointment, Mayor David Lawrence undertook a dramatic anti-smoke campaign in 1946 that greatly improved the air quality in the city. “I am convinced that our people want clean air,” the mayor said in his first inaugural address. “There is no other single thing which will so dramatically improve the appearance, the health, the pride, the spirit of the city.”

Lawrence was not alone. “The advocates of the Pittsburgh Renaissance conceived of decreased pollution as a means of assisting the transition of the city from a heavy-industry to a service economy by improving, modernizing, and reconstructing its central business district,” Stefano Laconi, who teaches the history of the Americas at the University of Florence, wrote in a 1999 essay in the journal Pennsylvania History. He argued that the initiative provided Lawrence “not only with the foundation of a public-private partnership but also with the basis of a bipartisan political coalition with local Republican moguls like Richard King Mellon.”

Years later, Republican Gov. Ridge, with Democratic support, began his administration with an initiative to clean up and redevelop brownfield sites. At the same time, the legislature won national attention by reorganizing the state’s approach to these issues, creating separate departments of Environmental Protection, which concentrates on protecting the air, water and land from pollution, and Conservation and Natural Resources, focused on state parks and state forests.

“At the beginning of my administration, I issued a challenge to Pennsylvania to become a national leader in finding new ways to protect our environment while promoting economic progress, to provide for the needs of the present without compromising the ability for future generations to meet needs of their own, and to think in terms of sustainability, with both the economy and our environment,” Ridge told me.  

The governor was fond of quoting the adage, “We do not inherit the earth from our ancestors; we borrow it from our children.” As governor, he said that,“I would often remind myself that the air we breathe and the water we drink should never be taken for granted.”

Much to be Done and an Election That Matters

The fact that a man is to vote forces him to think.

Jonathan Chapman, known as Johnny Appleseed

Ordinarily, the multi-interest collision of jobs and climate, energy and environment, might be top-shelf issues in a state that ranks second only to Texas in energy production and that had the largest increase in natural-gas production in the last decade. But that collision is a side show rather than the main event.

“All of these candidates need to speak up and tell us what they would do about the energy situation and the climate crisis that is growing more critical by the minute,” said Larry Schweiger, a former president of the National Wildlife Federation, PennFuture and the Western Pennsylvania Conservancy. “It is very frustrating to see candidates for governor and the Senate not making an effort to say how they would address these urgent issues. Both parties are guilty of  this, and it is a big omission and a big problem.”

Now Democratic Attorney General Josh Shapiro and Republican state Sen. Douglas Mastriano are facing off for governor and Democratic Lt. Gov. John Fetterman and Republican celebrity doctor Mehmet Oz are fighting for the U.S. Senate seat being relinquished by GOP Sen. Patrick Toomey

The four will face questions about their commitment to climate change with new urgency—and new stakes. And the pressure may well come from a newly critical group of voters: young people.

A Harris Poll survey conducted with 4-H found just fewer than half of teenagers believe political and global leaders are taking meaningful action to protect the environment. There is reason to believe that the top tier of teenagers, eligible to vote, and their older brothers and sisters will be motivated and perhaps mobilized by these issues.

“There’s no question that environmental issues are far more critical for younger voters,” said Steven Farnsworth, the political scientist who is director of University of Mary Washington’s Center for Leadership and Media Studies in Virginia. “This has been going on since the first Earth Day. It has to do with the fact that younger people are going to be on this planet longer than older people.”

The approach that these four nominees bring to these matters is important. “It’s not about issues, it’s about values,” said John Della Volpe, director of polling at Harvard Kennedy School of Government’s Institute of Politics and the author of the newly published How Gen Z is Channeling Their Fear and Passion to Save America. “And the degree to which candidates can connect climate change into values, and display that they are thinking about the future, they could affect the turnout of young people and how they do vote.”

There is much to be done. Pennsylvania ranks 19th among the states in the rate of growth for wind power, according to the PennEnvironment Research and Policy Center, and 23rd among the states in the rate of growth for solar power. The potential is great; if solar units were placed on the roofs of Pennsylvania’s big-box stores, for example, the result could be the annual production of more than 3,000 gigawatt-hours of clean electricity. There are bills in the legislature to require the state’s suppliers of electricity to generate nearly a third of their energy from renewable sources by 2030 and to put the state on a course to having 100 percent of its energy needs provided by wind and solar energy and other sources by the middle of the century.

Much of the emphasis will be on the state level, which is why the gubernatorial race between Shapiro, the Democratic attorney general, and GOP state Sen. Mastriano is so critical.

Shapiro speaks easily about clean energy, says he believes that more electric-vehicle infrastructure investments must be made, and pledges strict monitoring of the state’s utility companies. But he has broken with Gov. Wolf over whether the state should join the Regional Greenhouse Gas Initiative, known as RGGI, which puts a price and descending cap on carbon emissions. With an eye toward the power of the state’s building trades, he believes RGGI will be ineffective and will cause hardship among the state’s energy workers and companies.

As the state’s Democratic Senate candidate, Lt. Gov. Fetterman speaks of the climate issue as an “existential crisis” and argues that the jobs-versus-environment calculus represents a false choice. “We still need to make stuff in this country, you know?” A onetime advocate of a moratorium on new fracking sites, he now sees a rationale for a limited, perhaps temporary, expansion. “I have been steadfastly talking about how important it is that we retain the manufacturing jobs and the energy jobs in Pennsylvania that currently provide our energy security,” he said at a debate at Carnegie Mellon University, but added, “We also must acknowledge and recognize that we have to trend …. away from these.”

The Republican candidates in these two high-profile races take substantially different positions from their Democratic rivals. Oz, the Senate candidate, has abandoned his onetime advocacy of strict environmental regulation and calls for the “freedom to frack.” Mastriano, the Republican gubernatorial nominee, has argued that Wolf’s RGGI plan would “do far more harm than good” and this spring he submitted legislation to ban the federal government from regulating coal and gas extraction in Pennsylvania and to exempt the state’s industrial plants from the federal wastewater and air pollution rules. “We’re going to open up our energy sector like you’ve never seen,” Mastriano said at his victory celebration after he won the GOP primary.

A Monumental Figure

Unless we practice conservation, those who come after us will have to pay the price of misery, degradation, and failure for the progress and prosperity of our day.

Gifford Pinchot

If there is one symbol of the tensions, perspectives, history and impulses of Pennsylvania in environmental matters it is not the gentle Audubon, who nurtured a love of birds in the heart and mind of the nation, nor the hard-faced leaders of power plants and coal mines. It is not the passionate Carson nor the resolute lobbyists who besiege the legislative chambers in Harrisburg. All are part of the Keystone State culture, but none of them personifies the colliding interests in this vital and emotional area of political conflict.

Only one person does, and that is Gifford Pinchot.

Today, Pinchot is largely a forgotten figure, overshadowed as a conservationist by John Muir, eclipsed as a visionary by Theodore Roosevelt. Today, Gaylord Nelson, the late senator from Wisconsin and the founder of Earth Day, is regarded as the political magus of the conservation movement, a title once plausibly claimed by Pinchot. Today the world regards Wangari Maath, the Kenyan activist who founded the Green Belt Movement and won the 2004 Nobel Peace Prize, as the most celebrated troubadour and warrior for the environment.

All these titles once belonged to Pinchot, a monumental figure who was the 28th governor of the Commonwealth of Pennsylvania. He served two terms in the Capitol and lived in a family home named Grey Towers, just outside the tourist town of Milford, Pennsylvania. The home is now a National Historic Site and home to the Pinchot Institute for Conservation, dedicated to fashioning innovative responses to conservation and environmental challenges.

Pinchot, who died in 1946, went to his grave with a green-plated resume: First chief of the U.S. Forest Service. Chief of the U.S. Division of Forestry. Head of the Pennsylvania forestry division. At one time, the term “Pinchotism” was derided in Congress by business interests the way “Reaganomics” was criticized by early 1980s Democrats—until Pinchotism, like Reagonomics, was redeemed in the public eye.

And yet Pinchot does not wear an unblemished hero’s halo in history. Until recent damaging disclosures, that belonged to his chief rival, John Muir, his one-time ally and patron, though the shine on Muir was darkened in 2020, when Michael Brune, executive director of the Sierra Club that Muir helped found in 1892, cited him for having “made derogatory comments about Black people and Indigenous peoples that drew on deeply harmful racist stereotypes, though his views evolved later in his life.”

But in the long-ago conflict between Muir and Pinchot that spanned the period 1908 to 1913 and spilled over into later years is a story that captures the conflict at the heart of the environmental issue in the nation—and in Pinchot’s home state.

In the perspective of today, Pinchot had an ability, in the phrasing of his biographer, Char Miller, “to maintain what might seem like contradictory impulses—the desire to live simultaneously and within nature, to exult in its splendors while exploring its resources.” But in his titanic clash with Muir, Pinchot was cast as the bête noire of the movement he plausibly could claim to have helped create.

Muir was all about preservation and Pinchot was about wise or multiple uses of the land,” Douglas Brinkley, the Rice University historian who wrote about the PinchotMuir conflict in his 2010 The Wilderness Warrior, said in an interview. “The dispute was over what was conservation. Muir became a folk hero through the long shadow of the Sierra Club but Pinchot never had a legacy organization group.”

The venue of the clash was the Hetch Hetchy Valley in Yosemite National Park, but its implications extended nationwide and the forces at play continue to collide in Pennsylvania. Pinchot, a close advisor and friend to Theodore Roosevelt, was caught in the vise created by the moral passion of conservationists and the physical thirst of Californians. San Francisco wanted water, early environmentalists worshiped wilderness. There was no middle ground, though Pinchot was caught in the middle of the struggle.

It was, as the Library of Congress would characterize it a century later, “a division between those committed to preserving the wilderness and those more interested in efficient management of its use.” The two combatants had conflicting profiles: Pinchot was an insider, Muir was an outsider. Thus Muir claimed the moral high ground as the protector of the outdoors. The battle between the two men had its origins in Muir’s evolution to a view that, as Miller characterized it in his monumental 2001 Gifford Pinchot and the Making of Modern Environmentalism, “the practice of forestry and the preservation of wilderness were incompatible, a tentative conclusion that would harden into conviction in the first years of the new century.” The result was temporarily to place Pinchot, politically if not emotionally—and supremely awkwardly—in the same camp as his traditional opponents, business executives with a lust for land and lucre.

Pinchot saw this issue as a struggle between “the extreme desirability of preserving the Hetch Hetchy in its original beauty” against the legitimate water needs of San Francisco and other communities in the Bay area. Muir, in a letter to Pinchot, said the proposal to flood the valley to provide water for “the dear people” was “full of graft,” later characterizing it as a moral outrage and a mortal threat to wilderness values. It was a classic confrontation between a master of the political world and a mystic of the natural world.

The struggle wore on for years. Later Pinchot would tell a congressional hearing that “injury to Hetch Hetchy by substituting a lake for the present swampy shore of the valley…is altogether unimportant when compared with the benefits to be derived from its use from a reservoir.”

In the end, Hetch Hetchy was flooded and, though Pinchot remained prominent in conservation circles—he was advising Franklin Delano Roosevelt on these matters as they related to the future United Nations as late as the World War II years—his reputation was no longer unsullied.

The crosswinds of the Hetch Hetchy controversy—the issues it raised, the passions it ignited, the arguments it prompted—now blow as a gale through Pinchot’s home state. They are the prevailing winds of Pennsylvania.

A Step in the Right Direction

A true conservationist is a man who knows that the world is not given by his fathers, but borrowed from his children.

John J. Audubon

Coal once accounted for 60 percent of all electricity generated in Pennsylvania, a rate that has declined by more than half; today only a handful of large grid-connected coal-fired electric plants operate in the state. That represents a steep decline, though Homer City Generation said this spring that it would not follow through with tentative plans to deactivate its units in Indiana County. “This decreasing dependence on these sorts of plants shows we are going in the right direction in reducing climate-changing emissions from coal-fired plants,” said Hess, the former GOP environmental commissioner. “But it is mostly because of the competition between natural gas and coal. The problem is that we are now getting down to the point in the power sector that we can’t get additional big emission reductions. There aren’t more plants to close to give us those reductions. So we have to adopt other kinds of strategies.”

Pennsylvania has more than 86,000 miles of streams, more than any state in the lower 48. The miles of these waterways that can support brook trout are dwindling, in part because of climate change and in part because the invasion of the hemlock wooly adelgid insect has infected the shoreline hemlock trees that otherwise would provide shade for the streams.

This is only the latest incarnation of the centuries-long decline in the health of the state’s waterways. In the 18th century, the British army captain Harry Gordon pronounced the site of the confluence of Pittsburgh’s three rivers as “the most healthy, the most pleasant, the most commodious, the most fertile spot of Earth known to European people.” A century later, another British observer said that in Pittsburgh, “Man befouled the streams, bedraggled their banks, ripped up the cliffs, hacked down the trees, and dumped refuse in their stead.”

But the environmental crisis is not confined to western Pennsylvania. To take a random reading of air pollution in the state, Pennsylvania’s worst air quality on April 5 was in Mechanicsburg, outside Harrisburg, in the center of the state, followed by New Bloomfield, 23 miles away, according to IQ Air real-time figures. At the same time, Wilkes-Barre, with an average increased temperature of 3.3 degrees since 1970, substantially beats the average national rate of 2.6 degrees. So does State College, at an increase of 3 degrees.

Over the decades, the emphasis has changed from “conservation” to “stopping climate change,” with the threat of neighborhood contamination (the late 1970s), acid rain (the early 1980s), and the ozone hole (the mid 1980s) joined by global warming, a term introduced into the scientific and then the political lexicon when James Hansen, a NASA atmospheric expert warned a Congressional committee in 1988 that he and a set of climate modelers believed they could “confidently state that major greenhouse climate changes are a certainty.” He told the lawmakers that “the global warming predicted in the next 20 years will make the Earth warmer than it has been in the past 100,000 years.”

Opposition from an Unusual Coalition

To contemplate nature, magnificently garbed as it is in this country, is to restore peace to the mind, even if it does make one realize how small and petty and futile the human individual really is.

Harold Ickes

Many of the political tensions in Pennsylvania were visible in the debate that began last year—and became even more bitter this year—over RGGI. Gov. Wolf made becoming a part of the alliance of 10 New England and Middle Atlantic states—and, as a result reducing Pennsylvania’s greenhouse gas emissions by as many as 227 million tons by 2030—one of the top priorities of his final year in office.

The result was opposition by an unusual coalition of Republicans and labor unions, who argued that the governor’s plan would reduce jobs in the state.

“The ‘jobs-versus-environment’ framework is almost always part of these debates,” said Christopher Borick, a political scientist at Muhlenberg College in Allentown. “Environmental laws are for the public good—to protect the health and well being of individuals—so it is hard to argue against that. So what do you use as your argument? Jobs. It is sometimes a false choice, and often the environmentally sensitive approach can be a good economic choice. But politically, it is very powerful argument even if the reality isn’t the case.”

Last December, the Republican-controlled legislature passed a resolution that would halt the governor’s effort to join RGGI. The governor then exercised his veto, citing technicalities in the resolution and arguing that joining the group “is a vital step for Pennsylvania to reduce carbon emissions and achieve our climate goals.” When a stay issued by the Commonwealth Court expired in late April, the Wolf administration went ahead and published the regulation, and in less than a day the odd-couple coalition of coal unions and coal companies went to court to fight the order, which required operators of power plants fired by coal and natural gas to buy allowances for every ton of carbon dioxide they emitted.

“I want to give $150 million a year to a board headed by organized labor,” the governor, referring to a trust fund to aid individuals displaced by the transition to sustainable energy sources, told Inside Climate News as the controversy raged. “What don’t they like about this?”

In a separate interview, state Sen. Wayne Fontana, the chairman of the chamber’s Democratic Caucus and a member of the Game and Fisheries Committee, described the resistance mounted by Republicans in the legislature as “a wedge to use against the Democratic gubernatorial candidate in the fall.” He said the state has taken substantial steps to address environmental threats, arguing, “We have done a lot with lead in the water, we have beaten up air and water polluters.”

A Lack of Urgency

And so we live in a time when change comes rapidly—a time when much of that change is, at least for long periods, irrevocable. This is what makes our own task so urgent. It is not often that a generation is challenged, as we today are challenged. For what we fail to do—what we let go by default, can perhaps never be done.

Rachel Carson, accepting the Audubon Medal of the National Audubon Society in 1963

Now the challenge is global warming, which dwarfs the threat from 19th century industrial pollution and 20th century acid rain.

This past year did not have a silent spring when it came to the climate change issue. Indeed, the reports were more dire, the warnings more urgent, the lack of substantial attention more dangerous. The world, and Pennsylvania, face dramatic alternative outcomes from their actions or inaction. One choice might redound to cities underwater or lower energy consumption as a result of the creation of, in the characterization of the Intergovernmental Panel on Climate Change, of  “compact, walkable cities.” Another might be a continued reliance on private, gasoline-powered automobiles, trucks and buses or the “electrification of transport in combination with low-emission energy sources, and enhanced carbon uptake and storage using nature.”

The April report of the IPCC, the United Nations group that assesses science in relation to global warming, was sobering if not chilling. The bottom line: Net emissions are continuing to rise. “It’s now or never, if we want to limit global warming to 1.5°C [2.7°F] without immediate and deep emissions reductions across all sectors,” said Jim Skea, co-chair of the working group that produced the latest report, “it will be impossible.”

That will require what the IPCC working group co-chair Priyadarshi Shukla described as “the right policies, infrastructure and technology…to enable changes to our lifestyles and behavior.” And it will require a combination of policies and planning.

“We are opposed to long-term planning here in Pennsylvania,” said Professor Tarr of Carnegie Mellon University. “We react to crises, and we do so inadequately. People here generally have no sense of urgency about these kinds of issues.”

David Shribman served as editor of the Pittsburgh Post-Gazette for 16 years and won a Pulitzer Prize for his reporting on American political culture as Washington bureau chief of The Boston Globe. He now writes a nationally syndicated column, contributes a separate column to The Globe and Mail in Canada, and teaches American politics at both McGill University’s Max Bell School of Public Policy and Carnegie Mellon University.

Russia-Watching: Economic Dysfunctionalities

[from the Russian Analytical Digest]

This issue deals with dysfunctionalities in the Russian economy. The first three contributions look at the direct impact of sanctions. Ilya Matveev provides an overview, while Andrei Yakovlev compares the government’s anti-sanctions measures to its reaction to the economic impact of the COVID-19 pandemic. Janis Kluge offers a more detailed picture of the short- and long-term effects of the unfolding sanction regime. Michael Rochlitz then goes on to explain the lack of strategic planning in the country’s economic policy. Finally, Olga Masyutina and Ekaterina Paustyan provide a case study of inefficient governance mechanisms looking at waste management.

Read the full issue [archived PDF].

Analyses

Sanctions against Russia: No Blitzkrieg, but a Devastating Effect Nonetheless

by Ilya Matveev

In response to the Russian invasion of Ukraine, over 40 countries have introduced sanctions against Russia. The new restrictions concern finance, trade, logistics, and personal sanctions against businessmen and officials. In addition, more than 1,000 companies have ceased or limited their activities in Russia. In this article, Ilya Matveev argues that the sanctions, despite their unprecedented scale, have not led to the collapse of the Russian economy, yet their effect is dramatic, multi-faceted, and will increase over time.

Read the full issue [archived PDF].

Fighting the Pandemic and Fighting Sanctions: Can the Russian Economy Now Benefit from Its Experience with Anti-Crisis Measures?

by Andrei Yakovlev

Faced with tough international sanctions in reaction to its war against Ukraine, the Russian government has resorted to measures developed during the COVID-19 pandemic in order to stabilize the economy. This short analysis discusses the rationale behind this approach and demonstrates its limits.

Read the full issue [archived PDF].

Russia’s Economy under Sanctions: Early Impact and Long-Term Outlook

by Janis Kluge

Four months after a coalition of Western states imposed unprecedented sanctions on Russia, the Russian economy seems to be holding up better than expected. The Central Bank has managed to stabilize the country’s financial system and Russian officials are trying to project optimism about the future. However, this optimism is likely to be short-lived. The sanctions’ effects are only just beginning to unfold: supply-chain problems are intensifying and demand is falling quickly. In the longer run, Russia’s economy will become more primitive as it partially decouples from international trade. To avoid social tensions, the government will intervene to support Russian businesses, leading to more protectionism and a larger state footprint in the economy.

Read the full issue [archived PDF].

Why Russia Is Lacking an Economic Strategy for the Future

by Michael Rochlitz

Even before the economic crisis caused by Russia’s full-scale attack against Ukraine and the ensuing sanctions, the Russian economy was plagued by a number of growing problems. As a result, Russia’s economy has hardly grown for almost a decade, with an average annual growth rate of just 0.5% between 2013 and 2021. However, the Russian government does not have a strategy for addressing the fundamental economic challenges that are looming just over the horizon. There also seem to be no public debates about these challenges, whether in the policy circles around the government or among the wider public.

Read the full issue [archived PDF].

The Political Economy of Waste Management in Russia

by Olga Masyutina and Ekaterina Paustyan

The problem of household waste is one of the numerous environmental challenges facing Russia today. The 2019 nation-wide waste management reform was designed to tackle this problem by promoting recycling. However, the reform is stalling, due in large part to the nature of state-business relations in Russia. The lack of transparency in the public procurement process and the importance of personal connections between businesses and the federal and regional authorities undermine the implementation of the reform and produce suboptimal outcomes in the fight against waste.

Read the full issue [archived PDF].