Upside down economics

In his collection of essays entitled Earth In Mind David Orr introduces us to one William Nordhaus, a Yale economist who has been puzzling over the economics of climate change. The question Orr asks is whether Nordhaus is puzzling over the right things and in the right way. Orr is clearly interested in Nordhaus's views because those views very much represent the way most (but certainly not all) economists think about the natural world.

Back in 1990 in a one-line preface to an article by Nordhaus in The Economist entitled Greenhouse Economics: Count Before You Leap, the magazine's editors summarized Nordhaus's overall point as follows: "Careful cost-benefit analysis, not panicky eco-action, is the right answer to the risk of global warming." It's a statement that few would disagree with. Where the disagreement comes is how to tote up the costs and the benefits.

Of special interest are Nordhaus's views concerning which sectors of the economy are likely to be hit hardest by global warming and what effect that will have on society at large. In the 1990 Economist article he wrote:

Studies of the impact of global warming on the United States and other developed regions find that the most vulnerable areas are those dependent on unmanaged ecosystems – on naturally occurring rainfall, run-off and temperatures, and the extremes of these variables. Agriculture, forestry and coastal activities fall into this category.

Most economic activity in industrialized countries, however, depends very little on the climate. Intensive-care units of hospitals, underground mining, science laboratories, communications, heavy manufacturing and microelectronics are among the sectors likely to be unaffected by climatic change.

His views since then seem to have changed little as this excerpt from his new paper (July 24, 2007) on global warming and economic modeling indicates:

Economic studies suggest that those parts of the economy that are insulated from climate, such as air-conditioned houses or most manufacturing operations, will be little affected directly by climatic change over the next century or so.

However, those human and natural systems that are unmanaged, such as rain-fed agriculture, seasonal snow packs and river runoffs, and most natural ecosystems, may be significantly affected. While economic studies in this area are subject to large uncertainties, the best guess in this study is that economic damages from climate change with no interventions will be in the order of 2½ percent of world output per year by the end of the 21st century.

That's actually a significant dent in the world economy, but is it reasonable to believe that the harm to the economy will be limited to this amount if global warming goes unchecked?

Of course, there is just plain uncertainty about the trajectory of global warming. The Intergovernmental Panel on Climate Change provides scenarios which range from 1.8 to 4.0 degrees C of warming by the end of this century. James Lovelock, who believes global warming is now on a path to destroy world civilization, predicts 8 degrees C of warming in temperate regions and 5 degrees in the tropics.

But the question at hand is whether the relatively minor importance which Nordhaus assigns to natural systems is warranted. The answer is probably not quantitative, but conceptual. Orr does an excellent job challenging Nordhaus in the essay mentioned above. Here I only wish to add something visual as a way to think about this problem.

The two charts below (which you can click on to get a better view) use identical data to summarize the sizes of various industries in the U. S. economy as of 2005. (The data for the charts comes from the Bureau of Economic Analysis, U. S. Department of Commerce.) The first chart is a conventional pie chart. Someone viewing it might be forgiven for sharing Nordhaus's conclusion that agriculture and forestry are only minor parts of the economy and therefore even large effects on them due to global warming need not concern us much.


The second chart is how I conceive a properly informed ecological economist might depict the same data. The entire economy stands on the shoulders, as it were, of agriculture, forestry, and mining (especially the extraction of oil, gas, coal and uranium) and on the utilities that deliver the energy mined in usable form.


This method for depicting the economy was suggested to me by two things. First, Liebig's Law of the Minimum states that an organism's growth is limited by the amount of the least available essential nutrient. In the case of world society that nutrient would be food, though many would argue that fossil fuels are the essential nutrient since so much food production depends on the use of fossil fuels and their derivatives including fertilizers and pesticides. Second, a piece by Dmitry Podborits argues that it is nonsense to say that the U. S. economy is less vulnerable to oil supply disruptions today than in 1970s because it produces twice as much GDP per barrel of oil. Instead, Podborits suggests, we are more vulnerable to oil supply disruptions because we have so much more GDP balanced on each barrel of oil. The same argument might be made with respect to agriculture which in the United States in 1930 employed 21.5 percent of the workforce and made up 7.7 percent of GDP. In 2000 the numbers were 1.9 percent of the workforce and 0.7 percent of GDP. We are balancing an ever larger total economy on an agricultural economy that on a relative basis is shrinking. Certainly, we are getting more efficient, but are we becoming more vulnerable?

Of course, the United States could import food if the size of its agricultural sector declined without a corresponding increase in productivity. But such a strategy wouldn't work if every country pursued a conscious policy of shrinking its agriculture or if worldwide food production plunged abruptly because of poor harvests. (My charts might have been more illustrative had I constructed them for the world economy instead of just the U. S. economy; but, I was unable to find any suitable data. In principle, however, the same critique of Nordhaus would be even more applicable with regard to the world economy.)

Now look at the charts again and ask yourself which one more accurately depicts the importance of natural systems to the economy.

No warranty express or implied

Perhaps opinions on global warming and other critical ecological issues from such environmental savants as Rush Limbaugh, Glenn Beck, Fred Singer, Sean Hannity and the George C. Marshall Institute ought to bear a label explaining that these opinions come with no warranty express or implied. Such a label was suggested to me by a piece in David Orr's collection of essays entitled Earth in Mind.

About Rush Limbaugh Orr writes: "[I]f his view is wrong but acted on nonetheless, the consequences will be serious, and Mr. Limbaugh provides no warranty for buyers of his opinions that subsequently turn out to be defective." To this I would add that we ought to include a list of warnings and contraindications such as those which are now included in television commercials for prescription drugs--which warnings and contraindications usually make you think you'd be far better off not using the drug being advertised.

If such a label were to be included with broadcasts or in the introductions to printed pieces, naive television viewers, radio listeners and readers would be forced to evaluate whether their health and lives and that of their children, grandchildren, and all future spawn ought to be risked on a kind of ecological roulette offered by this group of environmental grandees.

I use the roulette analogy because science can only deal in probabilities. Likewise, their can be no certainty from these apologists for business-as-usual. So we are left with what the preponderance of evidence tells us, and it tells us in no uncertain terms that the vital signs of the Earth are in the danger zone and are moving further into that zone at a high rate of speed.

Of course, in a free society we do not want to impose a warranty or warning label on free speech, but we can respond to free speech that is designed to be intentionally confusing and misleading with clarity and where appropriate, a little ridicule. In this context, I offer (facetiously, in case anybody wasn't sure) the following proposed labeling for all environmental pronouncements including, to be fair and balanced, those that warn of ecological dangers ahead. The statement below might be used for television or radio, but could easily be adapted for written work:

Statement of Warranty

Definitions

"We" and "our" refers to the conglomerated corporate media enterprises that currently maintain a virtual stranglehold on the airwaves. "You" and "your" refers to the hapless viewer or listener who has no control over such media and who relies at his or her peril on the information (or lack of information) provided by said media.

No Warranty Express or Implied

No warranty express or implied is made for any opinions provided to you concerning global warming, resource depletion, species extinction, pollution or any other environmental topic. No refunds, replacements, or compensation will be offered to those killed or injured or who experience loss of property (including household pets) or livelihood (including farming and ranching) as a result of any of the following:

1. Rising sea levels.


2. Violent storms.


3. Food, fuel, mineral or fertilizer shortages.


4. Water shortages.


5. Drought.


6. Deforestation.


7. Disease resulting from toxic pollution or from the movement of tropical diseases to formerly temperate areas.


8. Costs associated with loss of eco-services to human or animal populations whether known or unknown at the time of the utterance.


9. Any other outcomes that can be linked to the diminished habitability of the biosphere.

Warnings

1. We bear no responsibility for the harm that may come to you or your heirs or assigns or to the biosphere at large even if our hosts or guests denied the existence of any such dangers or stated or implied that such dangers would be inconsequential.


2. You are advised that our hosts or guests may receive compensation or sponsorship in the form of cash, gifts, free meals at expensive sushi bars and other restaurants, rides on corporate jets, luxury vacations disguised as seminars and fact-finding trips, and speaking fees as well as myriad other items from the fossil fuel, nuclear, automotive, electric utility, chemical and other industries. Some of our guests may also have received lucrative appointments requiring little work from nonprofit organizations supported by the industries above and/or that have a stake in pretending that human activities are neither a threat to the stability of the biosphere nor to the human societies that rely on that stability.


3. You are further advised that our hosts or guests may have no recognized expertise or if they do have expertise, it is most likely in an area irrelevant to the matters being discussed.


4. Disjointed, inconsistent, and intentionally deceptive arguments may be used by our hosts or guests and will result in no liability whatsoever for said hosts or guests or for our programs, our producers or staff, our network, or our affiliated stations. Such arguments are designed to make it appear that we are "practicing journalism."

Contraindications

Advice flowing from opinions that downplay present and future ecological dangers for humanity may be contraindicated when:

1. You have children.


2. You are planning to have children.


3. You know any children.


4. You are a child.


5. You care about whether some (possibly more modest) form of modern, technical human culture can continue into the future.

Additional warnings

Conversely, if you follow any advice from hosts or guests that in any way helps create a more sustainable world, you are warned that you must take full responsibility for such results as:

1. An increase in biodiversity.


2. An increase in soil fertility.


3. A decrease in toxic pollution.


4. A decrease greenhouse gases.


5. A more equitable distribution of wealth.


6. Stronger local communities.


7. Any development that leads to greater sustainability that results from your actions.

We cannot take any responsibility for such results though we'd like to if you turn out to be right about the need to move toward sustainability.

Further additional warnings

Neither we, nor our producers or staff, nor our affiliates, nor our parent company, nor the shareholders of our parent company, nor the regulators of our network or our parent company have ever or will ever take responsibility for anything said about the above mentioned environmental topics or any other environmental topic.

Consent to This Statement of Warranty

By viewing or listening to our programs you agree to all the terms of this Statement of Warranty. In the event that you do not agree with this Statement of Warranty, you are advised to turn off your television, radio, Internet connection to our server, or other method of viewing or listening to our programs and seek other outlets for information.

Questions or comments

If you have any questions or comments about this Statement of Warranty, Warnings, Contraindications, Additional Warnings or Further Additional Warnings, fuhgeddaboutit.

Digesting Lovelock left and right

James Lovelock is about as famous as a scientist can get and still be a serious scientist. He is known most widely for proposing the Gaia Theory which states that the Earth acts as if it were a single organism regulating conditions in ways that are favorable to life. But more recently he has been in the news for two positions that have infuriated environmentalists. He supports nuclear power as a way to address humankind's energy needs without worsening global warming and he opposes wind turbines which he claims are merely an attempt to shore up unsustainable cities at the expense of the countryside.

In his most recent book, The Revenge of Gaia, Lovelock also downplays the chemical contaminants in food and criticizes organic agriculture as unable to feed the world. This comes from the man who invented the electron capture device that made it possible to detect miniscule quantities of pesticides and other pollutants in places like Antarctica. The device thus opened a new chapter in toxicology about the ubiquitousness and persistence of pesticides in the environment.

Lovelock is brilliant, and as an independent scientist he is beholden to no corporation or government. He can't be accused of special pleading on their behalf. His independence and broad view of the planet's workings have made it possible for him to see things that others could not see.

Given the way the news media covers Lovelock and the man's talent for a colorful turn of phrase, it's easy to see how his main message gets obscured. I think this is because his main message is far more disturbing than anything he has said about nuclear energy, wind turbines or pesticides. That message is that we must put Gaia, the great climate and physical system of the Earth which sustains life, first before any other concern. Logically, this makes sense. The well-being of every human on Earth depends on a healthy planet. But surprisingly, this logical necessity is lost on the political classes, both left and right.

How can this be? Aren't those on the left more concerned about the environment? Yes, those on the left are generally more sympathetic to environmental concerns. But, the main agenda on the left is social and economic justice, and this runs head on into Lovelock's dictum that Gaia must be put first before any other concern.

The watchword among those focused on alleviating worldwide poverty is so-called sustainable development. Here I agree with Lovelock. Perhaps when the world had 1 billion people and the ecological footprint of each person was a tiny fraction of what it is now, we could speak of such a thing. But, today the world is full, beyond full. We are in overshoot. This doesn't mean that progressives should abandon their quest for social and economic justice. It means that they will have to pursue it under different circumstances.

The unfortunate truth is that ideologies of both left and right share one crucial assumption: a belief in unlimited economic growth. For the right the fruits of that growth should go to the individual whether due to hard work or inheritance. For the left the fruits of that growth should be redistributed so as to insure at least a minimum of education, health care and nutrition for all.

But as the twin pressures of climate change and energy depletion begin to weigh on world societies, the left will have to come to terms with a possibly shrinking or at least stagnant economy. It has been fairly easy to make the case for redistribution of wealth so long as the wealthy kept getting wealthier. But it will be considerably more difficult to make the case for greater sharing in a world of diminishing prospects. As for the right, its focus on individual achievement within free markets has arguably created considerable vigor in economic life so long as economies were growing, but at the cost of great inequality. However, the hyperindividualism which this focus has spawned will likely only amount to every man or woman for him/herself in a constricted economic environment.

And so, the case for sharing the burdens of a diminished world will need to be made since the only alternative will be intense conflict over declining resources. The results of that approach are already on display in Iraq. Those concerned about building a sustainable world instead of fighting over the scraps of our unsustainable one already know the drill: conservation and efficiency; low-input, small-scale agriculture; public transportation; electrification of transport; relocalization of most economic tasks; alternative energy that is truly renewable and which addresses global warming without displacing critical food crops. The focus must be on increasing the fertility of the soil and reducing the human impact on the ecosystem.

All of this implies that the great concentrations of wealth made possible by a hypercaffeinated, networked world provisioned by colossal extractive technologies will end up dissipating. Wealth, after all, depends on the availability of energy and raw materials. When the energy needed to extract and refine those raw materials declines, so does wealth.

To lead in such a world will require a different kind of thinking. It will require building hope and solidarity around the notions of survival and simplicity. It will mean restoring dignity to manual labor. It will mean re-thinking what we mean by wealth and security. It will mean focusing on reducing population rather than growing it.

This is what flows from putting Gaia first. We can put Gaia first or we can watch it move into a new state that will be inhospitable to human civilization. Despite the scope of changes needed to move toward sustainability, we won't be ending civilization; we will be enabling its continuity.

Lovelock sees himself as a planetary physician who has made a diagnosis and suggested that the patient has a fever so severe that she needs drastic remedies. We must all now become planetary physicians and do our part to apply the necessary remedies.

Napping on the railroad tracks

Napping on the railroad tracks sounds risky on its face. But it may not feel that way if you don't know you're napping on the tracks.

Humans seem programmed to believe that the future will look pretty much like the past. But the narrative of history is the narrative of unexpected events. And, so it is surprising that when it comes to resource depletion, cornucopian thinkers love to refer to history. Daniel Yergin, chairman of Cambridge Energy Research Associates, likes to say, "This is not the first time the world has run out of oil. It is more like the fifth." But even though Yergin admits that oil is a finite resource (and that therefore its total quantity is declining), he invites us to snooze with him on the railroad tracks because history has shown that so far it's been safe to do so.

Yergin's faith (and that of many others) is founded on the forecasts of his own firm and that of the U. S. Energy Information Administration (which takes its data from the U. S. Geological Survey's World Petroleum Assessment). But what drives us to make such forecasts? Even create a whole forecasting industry? In his latest book, The Black Swan: The Impact of the Highly Improbable, Nassim Nicholas Taleb believes that we do so because we are planning animals. This behavior may be a successful evolutionary adaptation. We are able to imagine situations that might risk injury or death rather than simply experiment and see what happens. "Used correctly and in place of more visceral reactions, the ability to project effectively frees us from immediate, first-order natural selection....," he writes.

But, imagining the future is not the same as correctly predicting it. Taleb outlines the problems with forecasts as follows. First, variability matters. Most forecasts don't include an error rate, often indicated as a range of possibilities. In other words, how wide of the mark might a forecast be? (The U. S. EIA forecast is an exception, but it is not clear how the error rate is calculated and whether the data upon which it is based can be justified.) Very often, the "error rate is so large that it is far more significant than the projection itself!" (The EIA doesn't seem to understand this point.) Taleb gives this example: If you knew the place you are flying to is expected to be 70 degrees, you would pack much differently if you also knew that the range was plus or minus 40 degrees rather than plus or minus 5 degrees.

Second, forecasts degrade quickly as the forecast period lengthens. There are so many imponderables including technological developments; individual, corporate and government decisions; and unforeseen events such as wars, revolutions, and economic busts and booms, each essentially unknowable and each compounding upon the others with every passing year. "Our forecast errors have traditionally been enormous, and there may be no reasons for us to believe that we are suddenly in a more privileged position to see into the future compared to our blind predecessors," Taleb writes.

Third, there is often a failure to grasp "the random character of the variables being forecast." Taleb doesn't address resource depletion in his book. But, when it comes to oil supplies, those confidently making optimistic forecasts assume substantial new discoveries. However, discoveries can in no way be determined ahead of time; otherwise, they would be classed as reserves and not discoveries. Future consumption rates for oil depend on the economy which depends on so many individual and collective decisions that one cannot tally them all. And, even if we could, how would we know what numbers to use for 2017 or 2026?

When it comes to technology, it has always seemed to be a one-way street, ever improving. There can be no dispute that technology has put into the hands of human societies great power to learn about the world and to manipulate it. But, even here there have been long stretches of only small, incremental improvements in, for example, our ground transportation system which relies on the same basic internal combustion engine technology first produced more than 100 years ago. There have also been notable failures--no commercially feasible fusion energy and no miracle cures for genetic diseases. Technological development moves unevenly through various sectors, sometimes by fits and starts and sometimes not at all.

All of this implies that we have no way of determining whether we should prefer pessimistic or optimistic forecasts for world oil production. What is more perplexing is that both forecasts depend on certain kinds of extrapolations from the past. The pessimists focus on the peak in world oil discovery back in the 1960s and the optimists point to reserve growth through additions to existing fields and to advancing technology for both exploration and extraction. While the pessimists and optimists emphasize certain data, both accept the historical data, but then draw vastly different conclusions, i.e., an imminent peak in world oil supplies versus a distant peak followed in some cases by a long plateau. When it comes to technology, for example, the pessimists argue that technology has done pretty much all it is going to do for oil recovery while the optimists believe that vast increases in the percentage of the oil recovered from existing and undiscovered reservoirs lie ahead.

Taleb suggests a way to look at the problem as follows: "Even if you agree with a given forecast, you have to worry about the real possibility of significant divergence from it," he writes. How might he apply this to the peak oil issue? He gives us a pretty clear idea. "[I]t is the lower bound of estimates (i.e., the worst case) that matters when engaging in a policy--the worst case is far more consequential than the forecast itself. This is particularly true if the bad scenario is not acceptable."

While it's possible that Daniel Yergin and other cornucopians may continue to nap on the railroad tracks without any harm for many years to come, it is faulty logic that leads them to believe that there is very little risk in doing so. And, because of their influence, they are doing a great disservice to society by pretending that their oracular pronouncements are somehow based on something other than conjecture. (Such an admission might cut into demand for their forecasts, but it would be better for policymakers and society as a whole if they admit to uncertainty.)

On the other side of the argument, the pessimists would be wise to attach wide error bars to their forecasts as well. They can do this without abandoning their basic premise, namely, that preparing for a decline in oil supplies will be a monumental task that is better begun early rather than late precisely because we cannot predict when the decline will begin. Moreover, the use of generous error bars will have the added benefit of removing the "Chicken Little" aura which now surrounds so many peak oil theorists.

Taleb has strong words for the unctuous forecaster who won't admit the uncertainty in his or her work:

Anyone who causes harm by forecasting should be treated as either a fool or a liar. Some forecasters cause more damage to society than criminals. Please, don't drive the school bus blindfolded.

Deceptive landscape

I have taken to walking for exercise in a nearby neighborhood populated primarily by well-heeled professionals. There is very little car traffic (which makes up for the lack of sidewalks), and the area is both unusually quiet and aesthetically pleasing. Nearly all the houses have well-kept gardens with a variety of ornamental plants and flowers punctuated by properly-trimmed shrubs. Still, none of this exhibits the obsessiveness associated with grounds surrounding the homes of the super rich that are meant to repel outsiders by telling them that they don't belong there. Instead, this neighborhood displays an orderliness that is both comfortable and reassuring.

But my pleasant walk through these leafy streetscapes is deceptive. For all its orderliness this neighborhood generates enormous entropy that is hidden from the viewer's eyes. This has implications for our political life because these are the kinds of neighborhoods across the United States from which communities draw their leaders and in which turnout is heaviest during election time.

Even for those familiar with the environmental depredations wrought by this way of life, it is difficult to point to anything troubling in this neighborhood that is directly visible except perhaps the belching gas-powered lawn mower which disturbs the air with its thick exhaust. Even the Tru Green/Chemlawn truck applies its poison and fertilizer with little fanfare, leaving behind only mildly distressing miniature green and white signs that say children and pets should stay away, but only for the day. The tap...tap...tap and constant hiss of sprinklers dousing lawns produce a soothing cadence in the otherwise quiet air, signaling the delivery of a refreshing drink to living things groaning in the summer heat. (Of course, intellectually, I know that all this irrigation is a colossal waste of fresh water and of the energy to purify and pump it.)

The explanation for why this way of life creates enormous entropy and thus environmental damage is alas abstract on the one hand--global warming due to fossil fuel combustion used to create electricity is a fairly complex chain--or relatively hidden on the other--unseen oil and natural gas wells and petrochemical refineries that provide the basis for many of the chemical inputs used by the average American gardener or lawn enthusiast.

So, if the daily experience of the leaders who live in such neighborhoods is one of order and pleasant surroundings, how can we expect them to champion change? What immediate and visible incentive do they have, short of some personal philanthropic tendencies, to confront the major environmental and resource depletion problems of the day?

This is a classic problem of lag times. When it comes to climate change, for example, the rise in temperatures we are experiencing now has its origins in greenhouse gases emitted more than a generation ago. And, the feedback that would tell us how we are doing today will not arrive for another 30 years. Likewise, the deprivations that resource depletion might bring to a neighborhood like the one I describe above will not come there first. They will be felt first by the world's marginal populations; and, those deprivations will at most be experienced by Americans remotely in the form of television appeals for humanitarian aid. Americans will make few connections between the desperation they see on the television screen and the rising prices at home for basic goods. In fact, something like this is already happening when it comes to petroleum products, metals and food. But there are no shortages here--yet!

The human mind is primarily inclined to think in concrete terms. Abstract thinking is largely an acquired talent which needs constant practice in order not to atrophy. And, yet it is abstract thinking which is required to address the perplexing, systemic challenges we face. You might be able to reduce your own carbon footprint; but the carbon footprint of humanity is not going to be reduced without determined collective effort. And, that will require complex abstract thinking.

One step toward that way of thinking may be to see through the deceptive landscape of any relatively prosperous American neighborhood. Only when we can uncover the hidden and often abstract evidence of the damage our way of life is doing to the biosphere will a genuine public inquiry into our ecological fate be possible.