Recently there have been a number of discussions concerning economic growth and global warming. Some have argued that the effort to prevent as much global warming as possible will incur unacceptable costs to the global economy in terms of growth. Others have argued that growth is causing global warming.
I want to argue that neoclassical economics is badly designed to help with this debate. The two main problems, in my opinion, are that economics does not see the economy as being composed of a set of nonsubstitutable "life support" functions, to use Joshua Farley's phrase; and the neoclassical theory of economic growth is inadequate (PDF) for understanding how global warming (and most everything else) will effect growth.
The problem of economic growth looms large in both the DICE model put forward by William Nordhaus, and the Stern Report, led Sir Nicholas Stern, because they both calculate the extent to which global warming and global warming mitigation will effect growth. In 1991, Stern opined that growth theory "has, however, been a popular topic for those involved in formal economic theory only for short periods, notably from the mid 1950s to the late 1960s." There is a good reason for this: neoclassical growth theory doesn't really explain economic growth.
Professor Robert Solow of MIT is credited with devising the basic theory of growth. In accepting his Nobel Prize in Economics in 1988 for his work, Solow stated that "The permanent rate of growth of output per unit of labor input ... depends entirely on the rate of technological progress in the broadest sense." But neoclassical economics cannot explain technological progress, neither in the broadest sense, nor in most other senses: the vast majority of economic models assume no technological change, because the models are based on short-term processes. No explanation for innovation, no explanation for economic growth.
Solow later tried to get out of this conundrum in 1994 when he alluded to "a criticism of the neoclassical model: it is a theory of growth that leaves the main factor in economic growth unexplained." His solution: the work of Paul Romer, who devised a factor of production he calls "knowledge." Without getting into any more details, Romer is trying -- unsuccessfully in the view of many economists -- to square a circle: to talk about positive feedback, or exponential growth, or, well, things just increasing faster and faster, even though neoclassical economics is incapable of incorporating these sorts of processes -- the very processes that lead to economic growth.
Perhaps it is ironic that ecologists, who are acutely aware of the consequences of global warming, have been studying and writing about exponential growth since Darwin wrote On the Origin of Species. From a theoretical point of view, ecologists are in a better position to discuss economic growth than economists are. As I tried to show in a recent post, there are a set of kinds of machinery, which I called reproduction machinery, that are central to growth. For instance, a machine tool, a machine that make parts for other machines, can also make parts for more machine tools.
Capital, or more specifically the production machinery used to make goods and services, is at the center of growth of a modern industrial economy. The only social scientists who seem to have adequately developed this idea are the authors of The Limits to Growth, who use these processes to show that by the middle of the 21st century, our use of resources will peak and start to go down, with devastating results for the very global economy that economists are purporting to predict.
Now, if you look at the DICE model or Stern's report, you will see the use of terms like "total factor productivity" or "technical progress," which are given nice precise numbers. But that term is really nothing more than Solow's "technical progress in the broadest sense"; that is, it has not been explained. And this is because the main equation used -- called an aggregate production function -- while ideologically convergent with neoclassical economics, doesn't work in the real world.
In order to understand how this state of affairs came about, you have to know something of the intellectual history of the late 19th century. Economists were concerned that the theories of Karl Marx and other radicals were beginning to look very attractive. So John Bates Clark, one of the founders of neoclassical economics, countered with the concept of marginal productivity. While Marx was espousing the idea that each should give according to their abilities, and each should receive according to their needs, Clark wanted to show that this just state of affairs was already happening.
According to Clark's theory of marginal productivity, everyone's wages and salaries are the way they are because the natural operation of the free market insures that such will be the case. This is allegedly the consequence of the dimishing returns that every extra worker provides upon his employment; workers are hired until the next worker would yield not enough returns to justify his particular employment.
Both of these concepts, marginal productivity and dimishing returns, were used to construct an aggregate production function and a theory of growth. The world was divided into two "factors of production": labor and capital. Labor gets about two thirds of the income of the U.S. economy; therefore, economists reason, labor must be responsible for two thirds of the wealth of the country. Capital, receiving one third of the national income, must be responsible for one third of the wealth. And if there is economic growth, then it must be because labor contributes two thirds of the growth, and capital must provide one third ... except that they don't. Labor, as measured by total hours worked, has been pretty stable over much of the last 50 years or so, but the economy has grown many times over. As it turns out, capital has increased by about the same rate as the economy. So it would seem that capital causes economic growth.
But that would contradict the theory of marginal productivity, and to a certain extent by implication, the importance of diminishing returns. In 1975, Paul Samuelson, then dean of American economists, and the predecessor and temporarily coauthor of the major introductory economics textbook with William Nordhaus, had this to say about this problem:
A steady profit rate [that is, share of capital in national income] and a steady capital-output ratio [that is, capital and the economy track each other] are incompatible with the more basic law of diminishing returns under deepening of capital. We are forced, therefore, to introduce technical innovations into our statical neoclassical analysis to explain these dynamic facts.
In other words, the facts have to be arranged for the convenience of the theory; we need to invent an X factor, some mysterious force that must be there because that way the main theory would make sense. So when you see an economic study that talks about technical progress or total factor productivity, remember that what is being measured is really, at best, what the economic historian Moses Abramovitz famously called "a measure of our ignorance" -- and simply the random result of an inappropriate equation, at worst.
So what has all this got to do with global warming? First of all, the development of major technologies such as solar, wind, geothermal power, and trains are the development of the production machinery that I was referring to as the real source of economic growth. The same applies to technologies such as organic permaculture-type farming, or producing materials to retrofit buildings. So even if preventing as much global warming as possible led to a decline in certain activities such as the production of fossil fuels or bigger houses, it would build the foundation for larger economic growth -- and sustainable, long-term economic growth, at that.
There is a further important lesson to be learned. I indicated at the beginning that economics does not recognize the importance of the functional necessity of various parts of the economy. While machinery is necessary for the raw growth of the economy, the health of each major sector of the economy is necessary for the health of the overall economy -- the balance of nature turns into the balance of the economy.
What are these necessary sectors? Agriculture, for one, even though Robert Schelling, another economics Nobel laureate, recently stated that it didn't matter if global agriculture is hurt by global warming because agriculture is only 3 percent of the global economy. This is the sort of statement that is made if you think that everything is substitutable. If you lose something, you can always substitute something else for it; in a similar vein, some argue that we can replace our declining manufacturing base with services (I argued against this idea recently).
But if we use an ecological point of view, we see that the idea that nothing-is-necessary is useless for understanding the way a complex system works. Trees cannot be substituted with deer, and deer cannot be substituted with wolves. All three are necessary in a thriving ecosystem, and agriculture, manufacturing, water, the climate, cities, and services are all necessary if we are to thrive. Now, global warming, if it becomes even moderately destructive, will effect many of these. So even if, in money terms, the damage is not so great, in functional terms, the damage might be monumental. Therefore, aggregate numbers of how much damage global warming will create is not particularly useful. We have to know what is affected, and where, and in relation to the other sectors, in order to know the effects of global warming.
Neoclassical economics works well within the specific domain that is the subject of economic models -- a specific competitive industry, in the short-term, with little or no technological change. It is much less useful when needed to explain the economy as a whole system composed of many necessary functions, in the long-term, in the presence of continuous technological change. Before we decide that global warming won't do much to the global economy, we should listen to what climate scientists, ecologists, civil engineers and businesses say particular effects of global warming will have on our complex and beautiful planet.
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Comments
View as Flat
GSchmidt Posted 7:33 pm
14 Dec 2007
By the same token, I wonder if the people who argue that climate change will hit the poor the worst might not be mistaken:
If your economic productivity is hardly much (you build your shed from whatever you can find, grow much of your own food, or sell very little - or yourself - to buy food), if you lose that, it doesn't hurt "the economy" much either.
If you are rich and you get struck, you lose a lot and your high productivity gets adversely affected...
So, the rich lose out.
Unless, of course:
a) you count the money the rich may still have and now will have to spend on repairs and the like as a contribution to the economy. Then, catastrophes are good for the economy (as good or even better than planned obsolescence, probably), or
b) you realize that
- just as we first have to eat (ecosystem services typically count as 0% of global economy, agriculture is 3%, but it's that which we need in order to have the foundations for our very lives - and last I looked, "the economy" does not exist independently but is a catch phrase for people doing things such as agriculture, manufacture, trade,...) -
we also first ought to count human lives as intrinsically valuable, not just in terms of lifetime productivity.
Point "b" seems to be used when talking about the poor likely to suffer worst. But why, if economic cost-benefit analysis were what should supposedly guide us (nod to Lomborg and the "Copenhagen Consensus")?
Dr. Gerald Schmidt
Positive Ecology Project
http://www.positive-ecology.org
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infp Posted 11:21 pm
14 Dec 2007
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eriqa Posted 1:17 am
15 Dec 2007
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Jon Rynn Posted 2:57 am
15 Dec 2007
The idea of "industrial districts" such as silicon valley, according to my understanding, really originated more with Alfred Marshall, who ironically is generally credited with putting together the first full-scale theory of neoclassical economics via his book "Principles of Economics", which I believe was the main textbook into the 1920s. Paul Krugman has done quite a bit of work on this as well.
However, if you look at Freeman and Soete and others looking at technological innovation, they seem to be, at the very least, skeptical of neoclassical growth theory, so I think that work may be an interesting development but I'm not sure how it fits in with the main body of neoclassical theory.
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LegumeSam Posted 4:22 am
15 Dec 2007
Creating a global, ecologically sustainable society is not really about "growth" -- this is where capitalist economics fails us, for the capitalists are looking first for "growth" and then, if there is any time left in their busy corporate schedules, for some means of dispensing with the problem of "sustainability" in a manner that doesn't interfere with "growth."
Meanwhile, despite all the talk by the Schumpeter-inspired Silicon Valley geniuses, real economic growth, decade by decade, has been slowing since the 1970s (i.e. since the adoption of neoliberal economics by the elites). In an economy dominated by an enormous surplus of capital, the corporate world tends to generate investor Ponzi schemes while cheapening its labor supply and leaning increasingly upon government subsidy, instead of basing its profits upon growth per se.
One of the main hindrances to "growth" per se, of course, is the crisis of overproduction. With the economy top-loaded in favor of the investor class, and with wage growth basically (despite a few ups and downs) stagnant since 1973, whatever economic "growth" has occurred has been because of increasing mountains of debt leveraged on the home equity boom. And here we are, with said boom having come to an end. We should soon see the stores with zillions of products that nobody can afford to buy.
The other main hindrance to "growth" is the ecological limits to growth. There is really only so much economic growth that the environment can stand, before the environmental impacts exert blowback upon the "growth-rate" itself. This is what James O'Connor called "the second contradiction of capitalism." This effect isn't limited to abrupt climate change: think, for instance, of the impacts of urbanization upon the resiliency of natural ecosystems.
In the final analysis, the primary defect of the capitalist system itself is a matter of rates. The ecosystemic cornucopia that is Planet Earth is limited in the munificence of its gift by the rhythm of the natural systems themselves; this underlies Teresa Brennan's notion of the "prime directive," to wit: "we shall not use up nature and humankind at a rate faster than they can replenish themselves and be replenished." We need an economic system that moves with an ecosystemically affordable rhythm, and it's not clear whether a system geared to exponential growth can ever supply that.
http://www.dailykos.com/User/Cassiodorus
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Jon Rynn Posted 5:17 am
15 Dec 2007
If by economic growth you mean things that have much less of an footprint than most growth today, I think you could have growth, although it might not seem like growth to someone who expects a greater quantity of things. The computer, which has its own problems, is a good example
As for overproduction, I think there is overproduction in the sense that there is too much use of raw materials and energy for the biosphere, and there is also not enough income going to the working and middle classes, globally, to consume that which is being produced. The US in particular is producing less because it's manufacturing base is being eroded, and it has to immport a large percentage, which doesn't sound like overproduction to me. Instead, the manufacturing base actually needs to be resuscitated, but in a sustainable way.
Much as I would like to blame capitalism for these problems, the allegedly communist countries actually had worse environmental records than the capitalist, which means that we have to go to a deeper level, I think, because the point is to figure out a better system. I think one way to overcome both systems would be to have one in which employees own and operate their own firms, as in the Mondragon system of cooperatives. Much of the problem with capitalism is the presence of absentee ownership. Worker coops, in conjunction with municipal utilities of various sorts -- and check out the Working People's Bank in Mondragon for a model of a different kind of financial system -- may be the building blocks of an alternative, sustainable system, in which the local citizens have enough say and participation that their industries and infrastructure don't destroy their local ecosystems.
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gmobus Posted 7:14 am
15 Dec 2007
Would it be useful (or feasible?) to attempt to fix a definition of growth, grounded in biophysical reality, that we could then use to analyze various claims of economics?
This has been tackled before by ecological economists and actually before that by Howard Odum in ecology. The physical grounding comes from the recognition that free energy is transformed into chemical bonds in biological systems to produce biomass. The term used by Odum, embodied energy, has been shortened to emergy. As emergy is sequestered in biomass more chemical resources from the CHEOPS and trace minerals groups are clustered and the SIZE of the biomass increases at the expense of the material environment. The net result is both an increase in mass devoted to the biosphere and an increase in the relative complexity of the system. In nature, however, growth is self limiting by virtue of negative feedback mechanisms and, in the limit, depletion of the resources.
When applied to humans we are talking about the increase in human biomass, of course, but also the emergy and material mass devoted to human support systems. That would include the biomass of farms and the emergy captured in the tools and technologies of human origins. The amount of energy flowing into human usage, and diverted away from the rest of the biosphere has been increasing exponentially over history as human ingenuity has been applied to finding new, more energy dense sources of fuel, especially historically sequestered solar energy. Growth, therefore, is measurable by the emergy content of humans and culture.
In a finite resource and energy flow world - you know, the real world - growth of a single species will come at the expense of other species. Transforming rocks into tools means you give up rocks. The growth of one sector of the ecos results in the diminishment of all other sectors.
Economics doesn't begin to recognize this. It has no place for the conservation laws of mass and energy, nor the second law of thermodynamics for non-equilibrium systems. The earth is effectively a closed system to mass, and a fixed steady-state with respect to energy. Economics does not respect these realities. It's easy to understand why when not long ago the earth seemed a vast, conceivably infinite reservoir of everything we would conceivably need. And given the redundancy of function in some components of the environment, substitutability was not, at the time, an unreasonable assumption. But in the limit, it is of course false.
I would recommend sticking with the physical definitions of growth and development in order to truly conduct a scientific exploration of what wealth is and how it is created. Growth is an increase in mass devoted to a particular sub-system of the earth - say the human species and its civilization. Development is the increase in complexity over time. The latter also has the meaning of increasing the emergy extraction from total (and fixed) free energy flow-through. As Buckminster Fuller pointed out this means "doing more with less".
One thing I am quite sure of is that attempting to study growth or development phenomena using monetary units to measure is never going to produce meaningful results. There is no necessary connection or calibration between monetary units, such as dollars, and actual measures of mass and complexity. We have always relied on human judgment of worth or value to roughly gauge the correspondence. But as the nature of products and services have become so incredibly complex it has become increasingly impossible for individuals to make reasonable judgments about the long-term value of things they buy or services they purchase. It wasn't so long ago that one human could judge how long it might take him to make an arrowhead with his lesser skills, compared with how quickly he could make a game kill if he got arrowheads from his neighbor who had greater skill in arrow making but wasn't much of a hunter. Trade anyone? Those kinds of judgments are well within the human capacity to make. But how do you make judgments about wide screen, flat panel wall TVs? Certainly not by how much time and effort it would take you to build one. So what should you pay for it? (Actually should you even buy it?)
Economics, as practiced, is stuck in measuring attributes of the wealth-making machine that is human society using monetary units. Yet, if I and other physics-minded folks are right about the deep meaning of wealth-as-emergy then clearly the use of monetary units is way off the mark and will never tell us anything. Imagine trying to calibrate the relative values of energy production facilities (e.g. solar panels vs. wind turbines) when the meaning of a dollar's value shifts with the price of oil. And imagine what that means as oil is depleted. The dollar's actual energy purchasing power is based on a recursive relation. The more oil costs the more costly it becomes to produce oil extraction equipment. And guess what that does to the cost of oil. Its a vicious cycle that distorts measurements. The one that will be especially distorted is the gold-standard of economic health - the Gross Domestic Product. Using this device, the increased cost of oil extraction equipment contributes to the growth of domestic product (sold for more dollars) so the economy is gauged to be growing. I can't believe more people can't see this madness, but then I suspect that the majority of people can't really explain the second law of thermodynamics or the physical definition of work either.
Economics is a social science, and like all social sciences started its observation phase in the middle of the phenomenon of interest but with the assumption that its subject matter was a closed system without a need to see its relationship with the physical world (except in the sense of domination over it). Biology kind of started with a similar assumption about life - it is so obviously different from non-life that early Greek 'biologists' set it apart from the rest of the physical world. But that mistake was corrected by chemistry.
E.O. Wilson has called for a consilience of knowledge wherein the social sciences can be integrated with (not taken over by as too many post-modernists fear) the natural sciences. In truth its all natural science. But this would call for neo-classical economists to change their understandings radically, I think. I can see that this is a traumatic experience and means that many underlying assumptions about what is true will have to be revisited and many given up. But it is the only way forward as far as I can tell.
Economics has many useful insights and tools for studying the phenomenon of human choice and values - what artifacts and services they will want to use and have. But they need to be grounded in models that are co-extensive with physical, biological, and psychological sciences. Inroads to the psychology of economic choice have already been made, e.g. the work of Kahnemen & Tversky. But until this extends downward into biology and physical chemistry it won't produce any results we can actually use to solve problems like global warming.
Survival of our species could very well require questioning the conventional wisdom. I question everything at:
http://www.questioneverything.typepad.com/
George
George Mobus,
Associate Professor, Institute of Technology,
University of Washington Tacoma,
and Professional Student for Life
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bookerly Posted 7:37 am
15 Dec 2007
Dear Dr. Gerald Schmidt,
You say that if you are poor and lose everything, it doesn't effect the economy so much. Yeah, but how about the person who has lost what little they had?? They can't just replace it.
They die.
As to the poor rich who have more to lose, this is true. But they should contribute more to solving the problem in the first place so no on loses.
patrick in Beijing
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Jon Rynn Posted 8:40 am
15 Dec 2007
Neoclassical economics is built on statistical mechanics (I go into this subject matter here). That is, the units in the neoclassical models are homogenous, they are not created or destroyed, they are about the same size, and they don't change (no tech change). This allows economists to use all the powerful techniques of linear analysis, and throughout economic history many economists were first trained in physics.
I came out of international relations, which strangely enough benefits from the work of its top theorist, Kenneth Waltz, who developed what I think is a remarkable "theory of systems" which is more complete than, say, cybernetic versions. In his model, you can differentiate between systems in three ways: through ordering, through function, and through distribution of capabilities. Without making another post about it, the key question for us is the functional attibute of systems, and the key question is this: are economic systems composed of elements that are differentiated on the basis of function, as in ecological sciences, or are the elements not differentiated by function.
If they are not differentiated by function, then Schelling can say, as I wrote in the post, that ag is only 3% of gdp. The basis of substitutability is the assumption that there is no functional differentiation in an economy.
But clearly, there is functional differentiation, because you could have the other 97% of the economy and it would collapse without the 3% of the ag. or the manufacturing. or the water infrastructure. or the educational systems. etc. etc etc.
The problem is, if the system includes functions, you can't use all those nice mathematical techniques. You have to use -- guess what! -- computer modeling in order to capture feedback loops and dependencies, and most importantly, how a relatively small number of elements, each with its own peculiarities, interact. In other words, it's a "small n" (number) problem, not the "large n" problem that is what we need for statistics.
There actually is one economist who has developed important techniques that work in both worlds -- Wassily Leontief, inventor of Input-Output analysis. I think that his work can be used as the basis for a more realistic modeling of economic systesm.
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GonzoDon Posted 9:02 am
15 Dec 2007
So: When does maximum population growth and "economic" growth in the Petri dish occur? (that is, if we can imagine that the bacteria engage in some sort of 'economic trade' as they merrily multiply)? At about 59-1/2 minutes.
When does population and economic growth come to an utter and disasterous crash? Exactly 30 seconds later.
Hmmm. The human population on planet earth is 6.6 billion. It continues to grow exponentially, as we speak. In fact, there are twice as many on the planet today as when I was about 8 years old. Not really that long a period of time, especially given an earth that is 4.5 billion years old.
Now: Guess what my 'Economic Theory' predicts will happen to human population (or the remaining wildlife populations who need to share the planet's primary productivity with us) once Peak Oil hits -- that is, in roughly 15 to 20 years ...
Mine is not a very sophisticated model, I admit. But it makes a lot more sense to me than the weirdly disconnected-from-reality cornucopian economic models floating around out there, which come across to me like the rantings of madmen (and women).
More economists should take a few ecology courses. That's my suggestion.
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odograph Posted 9:08 am
15 Dec 2007
I kinda wonder why it isn't as simple as that. Obviously there is some price/ton that will do that. It may take trial and error to find it, but we can do that. It may take compensating tax cuts for the poor (payroll, etc.) to make it fair. We can do that too.
And it doesn't bother me at all that no one knows what growth, or what kind of growth, we'll have coming out of that. We need to cut the CO2, so let's do it.
Now, as I've said before, a world that just taxes away CO2 leaves less room for "world designers." Is that the real flaw in the system?
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LegumeSam Posted 11:00 am
15 Dec 2007
The first part of this needs a change in wording, but the second part is quite right. The US has forestalled the crisis of overproduction by allowing debts to balloon and by importing cheap goods from China, but the goods from China are no longer cheap because the US Dollar is even cheaper, and the creditors have apparently had enough because they're holding too many bad loans.
Much as I would like to blame capitalism for these problems, the allegedly communist countries actually had worse environmental records than the capitalist, which means that we have to go to a deeper level, I think, because the point is to figure out a better system.
The so-called "communist" countries were locked into a competition for what should be called "capitalist development" with the capitalist nations -- this competition, essentially, is what fueled the Cold War. See Kees van der Pijl's new book for an explanation of the historical context; also see Saral Sarkar's "Eco-Socialism or Eco-Capitalism?" for a proposed alternative. Sarkar, whose "socialism" is based more on Gandhi than on Marx, puts too much faith in administration; the reality of it is that a sustainable society will most likely be brought about through direct action and administered only afterward, as I suggest here.
http://www.dailykos.com/User/Cassiodorus
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LegumeSam Posted 11:03 am
15 Dec 2007
I kinda wonder why it isn't as simple as that.
Because such a move isn't politically feasible, given the role of the capitalist state in maintaining the capitalist economy?
http://www.dailykos.com/User/Cassiodorus
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Jon Rynn Posted 11:36 am
15 Dec 2007
Odo -- I'm at the point where I think we might have to leave the fossil fuels in the ground, as George Monbiot argued recently (and others have suggested at gristmill). If so, then eventually it's going to be to necessary to say "no more oil drilling" and "no more coal mining".
So how do we construct a society that can handle that? Even with a carbon price, we're talking about eventually banning carbon emissions. I'd say, go for a carbon price, but a policy of carbon prices can't have the goal of cutting down carbon emission; it would have to have the goal of eliminating carbon emissions. Can the market alone handle that? That would be nice, but I think we may need something more collective, social, political in order to decide how to construct a society that can handle no fossil fuels -- actually no fuels.
Sam -- Doing my best to read your excellent blog entries, there is a wealth of information that you are providing there that integrates ecological and socialist thinking.
I'm not particularly well-schooled in Marxist thinking, and I think one of the services you bring in your posts is to clarify what the hell they're talking about, for instance, Kovel, who seems to be very jargony. But this leads me to a major question: Where are the solutions? They seem to be very vague. I appreciate the garden example, and the idea of local participatory democracy, but my problem with socialist writing has been that the title of the books is something like "toward a new [put in your favorite term here]", after which 99% of the book is about the problems of capitalism, and then the last page talks about how we "have to build toward a [put your favorite term here] society".
So, in the spirit of your interesting post about realism, I'll just point to my own take on what I called"utopian realism".
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apsmith Posted 1:26 pm
15 Dec 2007
From my own limited readings in economics, and talking with a few real economists, "micro" economics seems certainly a sound science that can produce useful analyses to help in real decision-making for businesses in many sectors. But I simply cannot say the same for "macro" economics, the analysis of economy-wide growth, impact of government policies, trade etc. There certainly is an application of logic and reason that seems to make sense, but there appear to be so many different assumptions and starting-points and underlying political philosophies behind the different ideas that I am surprised anybody can substantiate any claim in the field. Is "neo-classical" economics even sufficiently well-defined to have adherents agree on the fundamental principles?
Having recently read Hofstadter's "Godel, Escher, Bach" and James Gleick's "Chaos" both for the first time (though I was pretty familiar with the ideas in both from way back), an inkling of a better way of thinking about economic processes came to me - I don't know how far it's been explored although I expect some of the "econophysics" folks have done something along these lines.
The central element in both chaos and Hofstadter's "strange loops" is a self-referentiality or self-similarity that comes through an iterative process - that may sound complex but it's ubiquitous in nature and in human affairs as well. In particular, in the economy you close a "loop" of this sort as soon as an output of an economic process is in some way (directly or indirectly) used as its own input (in a later iteration). One of the inputs to building renewable energy infrastructure (and perhaps the limiting one) is energy itself. The time for one unit of renewable energy infrastructure "output" to generate enough energy to produce another gives the fundamental cycle-time for one of the "loops" in this case, and puts an intrinsic limit on growth rate for the technology.
I think a better understanding of detailed micro-economic examples of that sort would bring a lot of enlightenment to the question of growth in macro-economics as well. Just a thought though at this point, not very well followed through yet...
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LegumeSam Posted 1:30 pm
15 Dec 2007
http://www.dailykos.com/User/Cassiodorus
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GSchmidt Posted 2:07 pm
15 Dec 2007
Staying within that perspective, you could say that the death of such a poor person, who can't replace even the little they lost, doesn't matter much to "the economy."
(And in some cases, they may actually be in a better position: As Jaret Diamond pointed out, if a global crisis hits, his New Guinean indigenous friends would, by and large, just go on as they always have, replacing stone axe with stone axe, hut with hut...)
But, is this really the way we want to see things, the future we see for humanity?
Your point about the "poor rich" points to what I'm trying mainly to work on: When environmentalists tell them, e.g. "they should contribute more," it seems they hear that they should just give up the little they (and actually, I feel it's a "we") have been able to get (and the poor want to get, finally). Who'd want that?
What get's overlooked is that - hopefully - you could "contribute more" in other ways, by which you gain in quality of life / well-being, so that - just as you are saying, "no one loses."
Dr. Gerald Schmidt
Positive Ecology Project
http://www.positive-ecology.org
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Jon Rynn Posted 2:47 pm
15 Dec 2007
But now positive feedback loops have gotten top billing because of the arctic and the (unfortunate) feedback loops with albedo. So I think the concept is better known now, which I think is a good thing -- even if the reason is not.
By the way, George Mobus, who commented above, has also been working on modeling energy flows and the self-reproducing nature of energy systems.
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cwistomoweina Posted 2:40 am
16 Dec 2007
There is no Nobel Laureate Robert Schelling!
There is a Robert Aumann, who shared a 2005 Nobel prize in economics with a Thomas Schelling.
Who actually made this statement?
also, dumb mistake...a simple Google would have cleared things up.
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Jon Rynn Posted 4:10 am
16 Dec 2007
Here is the full quote from ecological economist Joshua Farley, from an interview at worldchanging.com:
For any resource that is essential and has few substitutes, such as food and energy, when the amount available falls by 10%, the price rises by more than 10% - the less we have, the more GDP grows, and vice versa! This is why Exxon made more profits this year than any corporation in history, not because they produced more oil, but because they produced less. When economists forget this, they draw absurd conclusions. Take for example the recent Nobel prize winner in economics, Thomas Schelling, who says that global warming won't harm the US much since it will mainly affect agriculture, and agriculture only accounts for 3% of our GDP! When you measure everything in dollars, one dollar is as good as another -- better computers are a substitute for food.
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Jon Rynn Posted 4:50 am
16 Dec 2007
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JohnMashey Posted 11:51 am
16 Dec 2007
1) Could anybody (especially the economics-knowledgable) please comment on:
Ayres & Warr, "Accounting for Growth: the Role of Physical Work",
http://www.iea.org/Textbase/work/2004/eewp/Ayres-paper1.p ...
They make a lot of sense to me, and unsurprisingly seem much more connected with the real world & physics, than say, Solow. Of course, my early background was physics, so I may be biased.
I have commented more on why Ayres&Warr might be relevant:
http://gristmill.grist.org/story/2007/12/8/103236/174
But I'd like more opinions from people who've read what they say.
If they are right, wealth ~ exergy = efficiency * energy-used, and energy-used isn't going to go up very fast in the face of Peak Oil and Gas. In fact, it will likely go down, unless we go mad with coal, even if we build wind & solar like crazy.
2) Speaking as an old farmboy, the idea that agriculture is only 3% and therefore NO PROBLEM just tells me whoever said it is disconnected from the real world and may well think food just appears in grocery stores.
Water and food are not substitutable goods; no amount of cheap iPods help.
Everybody should be careful to avoid over-applying Moore's law way into the future. Moore's law was just an observation about: (a) density growth of transistors. For many years, we also got (b) performance improved simply as transistors shrinkage improved clock rates relatively easily.
(a) Probably has at least 10 years to go, but beyond that, there have to be really radical technology changes, and it will take serious work even to keep CMOS&related tech on that path beforehand. We've been on a ride for decades, but it's getting harder.
(b) is pretty much over, at least for CMOS. This is why Intel & ADM have eschewed GHz races in favor of "how many cores I can put on a chip and keep power low".
Of course, there are some good uses of microelectronics to help improve agricultural yields, but no amount of chips makes the Ogallala Aquifer refill, or fix the CA snowmelt problem.
We have hard work ahead just to keep food & water even with current population, much less do a reasonable job for 9B. Given Peak Oil, I wouldn't want to live anywhere where most of my food comes from a long distance, especially via fuel-burning ships.
The Economist's lead story last week was:
The end of cheap food
http://www.economist.com/opinion/displaystory.cfm?story_i ...
[Some people simultaneously believe in "eat local" and "the poor of the world need North American grain". One of those seems a fine idea to the extent it's possible; the other one is probably wrong in the first place, but mostly seems likely to get drastically reduced anyway post-petroleum. Any likely shipping fuel will be biodiesel or perhaps cellulosic ethanol, not oil, and it better not be coal-based synfuels.]
3)For a serious integrated analysis of energy issues, I recommend as an example:
http://www.energy.ca.gov/2007_energypolicy/index.html
Read the Executive Summary, and then if you're a glutton for detail, the full report is 300 pages,and it is interesting to see the range of participants, pp.279-. Very hard work ahead.
I'm interested in serious similar documents from other states or countries [CA of course is one with some behavior like the other] so I can calibrate best practices & learn ideas to copy.
Can anyone post pointers to similar planning documents?
-John Mashey
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markbahner Posted 11:53 am
16 Dec 2007
Julian Simon (The Ultimate Resource 2) pointed out that the real source of all wealth is the (free) human mind. Free politically, but especially economically. Therefore, the more free humans (again, politically, but especially economically) that exist in the 21st century, the greater the economic growth should be.
Ray Kurzweil (The Singularity is Near) makes it clear that computers will reach the capability of human brains in the next couple of decades, and then will far surpass the capability of human brains.
Arnold Kling and I (working separately) have made what I think are the most accurate and specific predictions of world per-capita economic growth in the 21st century. We both predict that world per-capita GDP will exceed $100,000 (1990$) by approximately mid-century, and will exceed $1,000,000 (1990$) before the end of the century.
Third thoughts on economic growth in the 21st century
And based on calculations I made in November 2005 on the number of "human brain equivalents" added to the world each year by computers, it seems probable that Arnold Kling and I are conservative...that world economic growth accelerate even faster than we predicted. That is, the "knee" of the curve of economic growth rate over time will be even more sharp than we predicted.
Why economic growth will be spectacular
Jerry Taylor pointed out the questionable morality of taxing the poor (people in the world today) for the benefit of the people of 2100. In fact, his thoughts were based on the IPCC's economic projections of per-capita GDP in 2100, which are probably much too low.
Mark Bahner
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Jon Rynn Posted 1:26 pm
16 Dec 2007
You might want to check out the work of Charles A.S. Hall, who is also working on energy-based models of economies, as an ecological scientist.
As I argued in the post, I don't really believe in aggregate production functions, but certainly, and again from skimming, they're work certainly looks like a vast improvement on the neoclassical growth work. The main problem is
as they imply but don't really articulate, the reason that energy conversion, and thus useful work, has improved, is because the machinery improved, e.g., electricity-generating steam turbines. The late Professor Seymour Melman, by the way, noted in the 1950s that you could use electricity productivity as a proxy for overall economic productivity (He was a dear friend of mine and my intellectual mentor).
Anyway, Melman also concentrated his economic studies on production machinery (machine tools in particular), and I retain that focus (bias?). Now, it's very difficult, if not impossible, to quantify the effects of the improvement of machinery; so, in effect, measuring the energy conversion efficiencies is the same as measuring the improvement in energy conversion technologies, so maybe I'm being a bit picky. However, there are also other types of machinery (e.g., information processing, material making) that also need proxies. Leading to
I'm thrilled to see Ayres and Warr put a positive feedback loop in the middle of their analysis, I think that's critical to understanding economic systems. Again, I would explicitly put machinery in the center of the positive feedback loops, but in a way they are doing the same thing, it seems to me, if the increase in efficiency of useful work is a measure of increase in efficiency of machinery.
Finally, my favorite document on the possibilities of replacing electrical generation with renewable energy at this point is "American Energy:The renewable path to energy security", put out by the Center for American Progess and Worldwatch, particularly the section on "Resources and Technology".
Hope this helps
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LegumeSam Posted 2:58 pm
16 Dec 2007
Remember the two possibilities I suggested?
Get rid of the people, and
Get rid of the environment
???
This one is firmly in the #2 camp. The free human mind is the ultimate resource, therefore we need not worry about the environment.
We need not worry, first off, about abrupt climate change, since with no environment we need not worry about any runaway greenhouse effect. The human mind will make up, somehow, for our 85-million-barrel-a-day fossil fuel burning habit.
We need not worry about the great drop-off in species diversity (1000x the norm for most of natural history, according to Leakey and Lewin) in the era of human domination, since the human mind will use Brown's principle of infinite substitutability to make up for the millions of extinct species and the loss of ecosystemic resilience somehow. We need not worry about energy return on energy invested, since the human mind will make energy cheap, plentiful, and ecosystemically harmless even if it isn't.
Finally, the human mind will eventually discover some way around the 2nd law of thermodynamics, so that the civilizational cores will be able to suck infinite wealth out of a global periphery which, up until now, has appeared to be a rather limited place, judging from the melting of the north polar icecap, the overfishing of the oceans, the disappearance of the coral reefs, and that Connecticut-sized dead zone south of New Orleans reported in National Geographic a couple of years ago.
And this is a mere shadow of what the human mind can do in economics! Bahner is telling us, mind you, that money -- which is merely (apart from its concrete aspect as paper, metallic coins, and pixels on a screen) the measure of the relationship between buyer and seller, as registered in the ruling notion of price, will be transformed by the human mind into a real, concrete "thing," as real as your face. After all, we are told that "world per-capita GDP will exceed $100,000 (1990$) by approximately mid-century."
This sort of bald-faced silliness is, of course, is no measure of whether any of this fictional "per-capita GDP" will reach the bottom 40% of global population which currently make less than $2/day, or of how it will reach such people (absent their actually having any leverage on the world economy as participants in a vast cheap labor-pool), and it is no measure of whether any of this supposed "per-capita GDP" will represent any real "wealth" we will actually want, or anything more than what the phony cooked-up statistic that is currently called "GDP" actually represents, or will be anything more than the mere impact of asset inflation upon the value of money. See Henry C. K. Liu's analyses for a deeper look into the latter.
I suppose this is the ultimate hubris of those who would like to dispense with the concern about a global, ecologically sustainable society by imagining the infinite versatility of the human mind, and beyond that, the infinite versatility of the computer mind. The problem is that environmental problems are not problems of the environment, strictly speaking, but rather problems of society, and problems of society are problems of human relationships. It's easy to show how the spread of free-thinking has been greatly magnified since the cultural and technological revolutions of the 1960s and 1970s -- revolutions which are to a certain extent still going on today -- yet the divorce rate still hovers around 50% and there is still about 1/8th of humanity that still doesn't get enough to eat. Did greatly advanced (and liberated) braininess make everyone just want to get along with each other? I don't think so.
Environmental problems are, then, in fact fundamentally social in nature, and not reducible to calculation. The "herdsmen" of Garrett Hardin's illustration of the "tragedy of the commons" do, in fact, calculate the shortest route to profit and to happiness, each of them individually, yet the sum of their individual calculations leads to the tragedy of the commons, and thus to disaster.
You can, then, increase the brainpower factor all you want, yet at the same time fail utterly in your intellectual task, fundamentally if you start your thinking from the unwarranted acceptance of faulty initial premises. This is at the very least what we should have learned from puzzles such as the "prisoner's dilemma."
http://www.dailykos.com/User/Cassiodorus
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JohnMashey Posted 3:57 pm
16 Dec 2007
I'd already read Hall et al's "The Need to reintegrate the Natural Sciences with Economics" (a great title!), but I'll go look at the others.
Also relevant to either Hall or Ayres is the idea that cheap energy enables cheap food (which lets people invest in other things) and that's Over. I ran across "Why Our Food Is So Dependent on Oil":
http://www.energybulletin.net/5045.html
-John Mashey
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gmobus Posted 4:43 am
17 Dec 2007
I see there are many interesting takes on the various issues (and at least one from some other universe!) I sincerely hope the issues regarding the nature of growth and its implication for global warming/peak oil continue to get our attention and dialog. Kudos to Jon for keeping this subject alive here.
It was a little surprising that my point about basing our scientific analysis and models of economic processes on energy measures vs. monetary units was not either challenged or picked up. The claim that continuing to argue about what growth is or isn't and whether it is good or bad on the basis of using monetary units is fundamentally flawed, I would have thought, would have raised some comments. Or am I alone in thinking that using money (dollars) as a measuring unit is too ephemeral to be meaningful in a scientific work?
Some additional comments referred to the inherent positive feedback loops in energy extraction that are a partial cause of distortions in the absolute value of money units, but not much else was made of it, from my quick reading. (BTW: exergy is akin to what I refer to as free energy, technically based on Gibbs free energy from statistical mechanics). So I think there must be some glimmer of agreement about the physical reality underlying economics.
Jon, I read your paper on Walrasian econ. I believe, if I recall correctly (but that is a 50/50 chance!) he used statistical mechanics-like math but didn't actually think there was a hierarchical connection (see below re: Gregg Henriques). In other words, he didn't base economics (and things like equilibrium) on statistical mechanics. Rather, as I think you alluded, it was a metaphoric application.
Others have actually found deeper relations between (e.g. statistical mechanics) underlying physical processes and the view from a macro-system level. For example Harold Morowitz wrote a delightful monograph many years ago called "Energy flow in biology". More recently Ron Fox has written "Energy and the Evolution of Life", integrating Morowitz's ideas with a much broader understanding of energy flow dynamics. So these two demonstrate how we get from physics to biology and evolution, which gets us to human brains. From there we need a meta-view. If you think, as I do, that human psychology and cultural evolution are grounded in biology, then the work of Gregg Henriques, "The Tree of Knowledge System and the Theoretical Unification of Psychology" gets us to economics via consilience with the social sciences.
In other words, when looking for underlying mechanisms for human activities, we have to dig down into the biology and ultimately physical bases. Money is an emergent phenomenon at the social level that does have a deep physical meaning, but that meaning is so far from the abstracted versions we have today (e.g. M2,3,..., futures, you name it) that it is futile to try to understand the physical reality of human life using it as a measuring tool.
But then maybe I'm just in another universe!
George
http://www.questioneverything.typepad.com/
http://faculty.washington.edu/gmobus/
George Mobus,
Associate Professor, Institute of Technology,
University of Washington Tacoma,
and Professional Student for Life
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gmobus Posted 4:45 am
17 Dec 2007
George
George Mobus,
Associate Professor, Institute of Technology,
University of Washington Tacoma,
and Professional Student for Life
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Jon Rynn Posted 4:56 am
17 Dec 2007
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markbahner Posted 12:48 pm
17 Dec 2007
Who wrote that? Certainly not I. The claim here is that no one knows what creates economic growth (or even more radically, that ecologists know what creates economic growth).
I was simply pointing out that the late Julian Simon stated quite clearly what was the source of economic growth...(free) human minds. If he is right (and available evidence indicates strongly that he is), then the more (free) human minds available, the faster will be world economic growth.
Therefore, one could simply look at the total human population, and objective measures of human freedom (e.g., Freedom House's ratings of political and civil liberties freedoms, or even more importantly the Frasier/Heritage/Cato Index of Economic Freedom) and predict whether the economic growth rate would remain the same, increase, or decrease.
This is entirely neglecting Ray Kurzweil's analysis, which is particularly important for the 21st century, since this will be the century in which computers equal and then vastly exceed the capabilities of the human mind. To determine the population of "human" brains, it will be necessary to add in the contribution of computer brains.
"This sort of bald-faced silliness..."
"Bald-faced silliness?" OK, here are my predictions for world per-capita GDP (year 2000$, purchasing power parity...the value in the year 2000 was $7200):
$ 13,000
$ 31,000
$130,000
$ 1,000,000
$10,000,000
Why don't you make yours? We'll see who is closer.
"...and it is no measure of whether any of this supposed "per-capita GDP" will represent any real "wealth" we will actually want,..."
Like I wrote, world per-capita GDP in the year 2000 was about $7,200. Income is typically approximately 75 percent of GDP. So world per-capita income was about $5,400. I'm predicting that in 2060 world per-capita income will be about $100,000. My guess is that most people would prefer an income of $100,000 to an income of $5,400.
Don't you think?
Mark Bahner
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LegumeSam Posted 1:17 pm
17 Dec 2007
At any rate, Bahner has decided to use his "free human mind" to repeat the fallacies I've debunked the first time around. So there's really no debate here, no real communication, and definitely no evidence that Bahner has carefully read any more than a small portion of what I wrote in my last post.
"The free human mind is the ultimate resource, therefore we need not worry about the environment."
Who wrote that? Certainly not I.
Bahner need not say this outright. Can any of you bystanders find any environmental concern at all in any of Bahner's texts? Any at all?
My guess is that most people would prefer an income of $100,000 to an income of $5,400.
Don't you think?
It really is too bad that Bahner has not yet developed the wherewithal to respond to my numerous, numerous objections to this brand of reasoning, all of which I have voiced before.
If $100,000 bought you a bare existence in a world that had been ruined by ecological devastation, would you prefer it to a merely $4,500 that brought with it the possibility of a robust existence in a world with healthy, resilient ecosystems?
http://www.dailykos.com/User/Cassiodorus
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markbahner Posted 10:28 am
18 Dec 2007
Funny, when I was spending 12-16 hour days on top of an electrostatic precipitator on a black liquor boiler at a pulp and paper mill (temperature 90-115, with sound so loud all communication had to be shouting...not to mention the smell)...I don't recall seeing you there.
In fact, I doubt you've ever done any stack testing in your life. When you've spent a couple 60-80 hour weeks doing stack testing (including when you've got the flu), come back and we'll talk.
If $100,000 bought you a bare existence in a world that had been ruined by ecological devastation,...
Do you really think it's even remotely possible that, if the world per-capita income in 2060 is $100,000, that it can be a world "ruined by ecological devastation"? (Short of after global thermonuclear war...in which case the per-capita income will never be $100,000.)
P.S. You've called my predictions "bald-faced silliness." I'm still waiting for YOUR predictions, so we can see who knows what he's talking about.
Mark Bahner
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LegumeSam Posted 11:13 am
18 Dec 2007
As for the last part:
Do you really think it's even remotely possible that, if the world per-capita income in 2060 is $100,000, that it can be a world "ruined by ecological devastation"?
I think it's probable, since the US can't seem to stop printing those dollar bills, and since, with the coming collapse of the debt infrastructure of the Age of Finance Capital, we can expect the expansion of debt to result in that old-fashioned consequence of too much money out there: rampant inflation. If the Feds throw bad money after good for long enough, even the inhabitants of Mumbai's slums will be receiving $100,000/ year, all of it worthless.
As for ecological devastation, the failure of the existing capitalist system to shut down an infrastructure dependent upon the consumption of 85 million bbls. of oil/ day, or for that matter to keep the oil in the ground (when its exploitation is so profitable) is likely to continue into the indefinite future, with the disastrous consequences predicted in Mark Lynas' research compendium titled Six Degrees.
P.S. You've called my predictions "bald-faced silliness." I'm still waiting for YOUR predictions, so we can see who knows what he's talking about.
I predict that you won't even bother with a response to my other objections to your predictions. Try to show that you know what you're talking about before pointing fingers.
ps All predictions fall under the predictive paradox: the very fact of a prediction affects the future to be predicted.
http://www.dailykos.com/User/Cassiodorus
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