Is "growth" good?
Michael Tobis
based only on two centuries' evidence. Those two centuries are a long
time in human affairs, but they describe a situation which is
vanishing. Among the major differences, they describe a situation
where private goods like food an shelter are in short supply and where
public goods like air and water are essentially infinite, where labor
is scarce and manual effort is always useful, and where emerging
economies can be bootstrapped through resource extraction to provide
services to even less developed ones.
As a consequence of their ideas being carefully tuned to the vanishing
historical circumstances of the industrial revolution, many ideas that
economic thought takes for granted seem to be good approximations for
circumstances that no longer apply.
A very commonly held idea is that "growth" is a legitimate goal of
governance. Is this position justified?
I saw Bill Clinton on cable TV shortly before the recent US election,
giving a marvelous speech. On the whole, I am favorably disposed
toward Mr Clinton and I thought many of the points he made were
excellent ones, but he talked about economic "growth" within the US as
an unqualified positive. Much was made of his administrations
successes in promoting "growth" and the subsequent administrations
relative failure to do so.
It's unclear that anyone knows what this quantity that is supposed to
be "growing" means, or that its growth is necessarily an unqualified
benefit for in the context of a wealthy advanced society. I understand
that it is measured in money, which seems objective enough, but it
seems to me that the equation "money = wealth = well-being" is assumed
and is inappropriately unexamined in the commonly held growth-is-good
point of view.
Much of what passes for "growth" seems to me to be the equivalent of
promoting profligacy and waste, which is at best neutral in an open
frontier and is quite damaging to well-being on a finite planet. For
instance, huge vehicles cost more than small ones, which in turn cost
more than comfortable trains. Huge houses (500 square meters is not
uncommon for new housing in America at this point) cost more than
small ones, which cost more than apartments.
Even in the absence of policies that encourage conservation, the
effect may be perverse. It's my observation that people in huge houses
are not usually happier than people in tight-knit dense neighborhoods,
for instance. I would love to see a statistic correlating divorce
rates with house size.
I will acknowledge that in cultures and nations where poverty is
endemic, growth is good. In cultures where profligacy and waste is
endemic, though, is it possible that growth may actually be a bad
idea, a toxic goal?
I recently came across the following quotation (unattributed so far,
attribution welcome):
"Nous devons admettre qu'une fois les besoins de base satisfaits,
l'évolution de l'humanité n'est pas une question d'avoir plus, mais
plutôt d'être plus." (*)
I agree with this idea. Eventually we must reach a steady state. We
must make peace with the planet. Our impact must be stabilized. This
doesn't mean our well-being will stop growing, but it may well mean
that our cumulative wealth, measured in dollars or something like
that, must stabilize.
Based on this idea, in the longest run and on the grandest scale, it
emerges that change is bad, because change is destabilizing of the
only living planet that whatever providence there may be has somehow
managed to grant us.
We must ourselves change at this time, but I think it's inevitable
that to survive we must change to a sort of changelessness. We must
coexist with nature. Our resource demands must be limited and our
extraction loops closed. We can perhaps conquer other worlds some day
but the cost of that happy future is that we must make peace with our
own world first.
Michael Tobis
(*) My translation: "We must admit that once basic needs are met, the
evolution of mankind isn't a question of having more, but of being
more."
Kit Stolz
exactly right.
Michael Tobis
I now think I should use "progress" rather than "evolution" in my
translation, actually.
mt
Robert A. Rohde
become, through human effort, a $20 widget. Economic growth describes
an increase in the rate at which one is able to create wealth.
In theory, economic growth and environmental sustainability are
independent concepts. One could imagine an economically growing
society that was founded solely on renewable and recycled resources.
In reality, the economy of our present world is heavily dependent on
the exploitation of non-renewable resources, and so growth is often
associated with increasing environment degradation.
The admirable goal of an economically sustainable world that you
describe need not be a world of stasis. It is likely that human
creativity and intellectual achievement will inevitably lead to growth.
To take an obvious example, there are an essentially limitless number
of books, plays, and movies yet to be created. The question is not
whether the future world will be able to forgo growth, but whether that
world will be able to restructure their economy in a way that allows
economic growth to develop in an environmentally sustainable and
neutral way. Probably the biggest step along that path will be finding
ways to meet the world's energy needs through renewable means.
It might also be worth rembering that it is the successful, growing
economies that are most apt to worry about pollution controls and
nature preserves. For the US, clean water and air regulations and the
significant imporvements that they brought are in many ways a product
of economic success. A successful economy that is conscious of
environmental concerns can even derive economic growth through efforts
to improve the environment. Even as much as it is an artificial
imposition on the economy, a carbon cap and trade program could have
the power to make combatting global warming into a major growth
industry.
Sustainability is an important long-term goal, but it is not
intrinsically opposed to economic growth.
-Robert A. Rohde
Alastair McDonald
> intrinsically opposed to economic growth.
At present, we in Britain use three times more than our share of the world's
resources. For our way of life to be sustainable we would need to cut our
consumption by 70%. Do you really believe that it is possible for us to do
that and have economic growth?
Cheers, Alastair.
gerh...@aston.ac.uk
(my comments on:
http://www.policyexchange.org.uk/Issues/Housing.aspx
500 square metres is huge and maybe uncorrelated with happiness, but
there's good evidence that people in Britain want to live in detached
houses with gardens, rather than flats in dense towns where every
available green space gets concreted over for even more flats,
and while 98% don't want to live in flats, some 50% of new build is now
flats in Britain, and most of the rest are tiny town houses with either
no garden or virtually no garden.
The reason for that is extremely tight planning laws that force
densification, partially because of the supposed climate benefit (ie
less energy for heating and less commuting).
I think the above reports make a very convincing case that
densification does nothing for the climate. If people aren't allowed to
build somewhere close to the cities, they'll just become extra urban
and move to villages 50 miles from work. Housing density, once income
and petrol price are taken account of, has no discernible impact on
petrol consumption.
And when land prices are driven skyward, people choose to live in old
and poky housing, much of which is far from energy efficient. New build
can be made to consume very little energy for heating, and that little
can be supplied by heat pumps (ie can be zero carbon, if nuclear or
wind powered).
Robert A. Rohde
Yes, though it would have to be a managed transition over a substantial
length of time.
-Robert
Michael Tobis
> The creation of wealth is the process by which $10 in widget parts
> become, through human effort, a $20 widget.
Fine as far as it goes, yes. I think that a big part of where I lose
the thread of the economic conventional wisdom is where it tries to
cover long time scales, where a dollar in a current year is
incommensurable with a dollar a century ago or a dollar a century in
the future.
Another issue is that if I spend a half hour driving around looking for
a parking space I am considred to be involved in economic activity
while if I were merely sitting under a tree enjoying the weather I
would not.
Much economic activity is actually contrary to well-being compared with
idleness and rest. As pressures to growth increase, it is not obvious
that the well-being of those in the growth-oriented society increases.
Eventually, the net wealth would be sufficient, and growth could only
be promoted by enforcing unnecessarily harsh partitions of the wealth.
If my thinking were valid, you would increasingly find people in more
growth-oriented societies more stressed, less happy, and less healthy
than those in less growth-oriented societies.
I believe that it's possible to make a case that exactly this is
beginning to be observable.
> Economic growth describes
> an increase in the rate at which one is able to create wealth.
Assuming that wealth is well-defined, yes..
> In theory, economic growth and environmental sustainability are
> independent concepts. One could imagine an economically growing
> society that was founded solely on renewable and recycled resources.
> In reality, the economy of our present world is heavily dependent on
> the exploitation of non-renewable resources, and so growth is often
> associated with increasing environment degradation.
>
> The admirable goal of an economically sustainable world that you
> describe need not be a world of stasis. It is likely that human
> creativity and intellectual achievement will inevitably lead to growth.
> To take an obvious example, there are an essentially limitless number
> of books, plays, and movies yet to be created. The question is not
> whether the future world will be able to forgo growth, but whether that
> world will be able to restructure their economy in a way that allows
> economic growth to develop in an environmentally sustainable and
> neutral way. Probably the biggest step along that path will be finding
> ways to meet the world's energy needs through renewable means.
I think we are in complete agreement about where we want to see the
world end up. I think our disagreement is in the appplicability of
economic theory as usually described to getting there.
> It might also be worth rembering that it is the successful, growing
> economies that are most apt to worry about pollution controls and
> nature preserves. For the US, clean water and air regulations and the
> significant imporvements that they brought are in many ways a product
> of economic success.
I believe this well-worn argument has some validity, but you will find
that those most often advancing it very quickly turn around and argue
against any particular environmental constraint on economic activity in
favor of fixing it later, a "later" that never seems to arrive.
I am not, let me make it clear, opposed to freedom, initiative,
enterprise, or even corporate capitalism. I think all these things have
an essential place in a functioning modern society. What I am
questioning is the almost universally accepted idea that "growth" is
good, or even, in the long run, well-defined.
> A successful economy that is conscious of
> environmental concerns can even derive economic growth through efforts
> to improve the environment. Even as much as it is an artificial
> imposition on the economy, a carbon cap and trade program could have
> the power to make combatting global warming into a major growth
> industry.
This well-worn argument (growth through constraint) is rarely wielded
by the same people wielding the previous one.
In general I like the people making the latter argument better.
Unfortunately, I think it is a very weak argument and I quite dislike
it. If this were true, we could benefit (on the assumption, as usual,
that "growth is good") from arbitrary regulations against any random
activity.
> Sustainability is an important long-term goal, but it is not
> intrinsically opposed to economic growth.
Perhaps not.
My point goes the other way, though. I suggest that "growth" is not
identical to well-being, and that its pursuit as if the linkage were a
tautology may increasingly, in practice, be antithetical to well-being.
mt
Michael Tobis
bait I offerred here.
I am expressing doubts that I would like to see addressed, about things
that I have rarely seen called into question.
I do not like it when climatologists argue from authority. I think it
is not only fair but appropriate for entire discpilines to be called
into question when their conclusions are consequential for the world
outside the acedemy.
I would like to see similar standards applied to economics.
I am absolutely convinced that economic thinking is necessary for
long-term policy, and I am interested in linking climatology with
economics. However, I am concerned that the bulk of the economics I see
appears to me to suffer from some unexamined assumptions and circular
reasoning, especially when applied to long-term problems.
I am disappointed that you only address a secondary supporting point,
though. For what it is worth, I reply.
Housing construction is a very important part of the US economy, which
goes through considerable contortions to encourage it. A "bubble" has
emerged, wherein enormous and impractical houses are perceived as a
good investment. In addition to the economic risk that this entails, it
definitely and obviously causes direct environmental damage both
locally and globally. I think most people would be aware of the
"externalities" that drive this dynamic, in part.
What I don't often see questioned is the idea that this trend is good
for the people participating in it. My question is whether the person
in the 5,000 square foot house is in any real sense 5 times better of
than the person in a 1,000 square foot house. I doubt it. On the whole,
in my observation, the former is nasty, agressive, confused, alienated
and unhappy. Such a person even has a tendency to take solace in
bizarre superstitions, much as people in the poorest and most destitute
societies do, and much to the detriment of those of us who share a
planet with them.
In short, I see a policy driven by a universal agreement in the
political sector that growth is good as a root cause of many of the
worst trends in America.
This is not to say that getting regulations, subsidies and constraints
right is easy. It is to say that it is hard. Just because there are
other ways to get it wrong doesn't imply that "growth" is the right
metric.
mt
Kooiti MASUDA
that it is a good thing in some usage of the term.
But I think that it is more enlightening to distinguish "growth" and
"development", and to limit the meaning of "growth" to those changes
which involves increases of some quantities representing the throughput
of mass or energy. Obviously, because the size of the earth is
limited, we cannot continue growth (in this sense) indefinitely. In
other words, we cannot expect "sustainable growth" (in this sense).
"Development" may be represented by increase of some quantities related
to value. Sustainable development is possible if we can increase the
value per unit throughput.
I am a climatologist, and not an economist myself. But this thought
follows the discussion in a book of Daly (1996), an economist. Perhaps
his opinion is regarded as a heresy among economists, but I think that
economics should shift toward his direction.
Reference:
Herman E. Daly, 1996: <em>Beyond Growth: The Economics of Sustainable
Development</em>. Boston: Beacon Press.
Ko-1 M. (Kooiti Masuda)
gerh...@aston.ac.uk
economist, though I do have a keen interest in economics, and there are
some areas of overlap (process economics, techno-economic studies).
I did address your secondary supporting point, because just right now,
it is one I worry about a lot. My wife is pregnant, my first son one
and a half and we'd like 5 children in total, and we live in a 60
square metre flat and are acutely aware of how much a decent sized
house with a garden would cost in this country. We may not need a 5000
square foot house, but 1000 square feet for 7 people and with a near
non-existent garden for £200,000 may indeed make us rather unhappy.
There is good survey evidence that people want to live in houses with
gardens, it means more privacy, it means being able to do gardening and
enjoy plants and greenery, it means less disturbance from noise, and
the ability to listen to music at 3 o'clock at night without having to
worry about the neighbours that are only separated from you by a paper
thin wall. It also means space for bikes, and lower local traffic
volumes. I do not cycle anymore in Birmingham, while in the low density
village sprawl of my German home village, it's quite safe and
enjoyable.
In Germany, property prices have been flat in real terms for decades,
precisely because higher prices are allowed to immediately lead to a
supply response.
It is planning restrictions of the British kind that lead to house
price cycles, which are much worse than the US ones.
I do not think that restricting land use as is done in Britain to
contain sprawl has the advertised positive emissions effects. Driving
is completely unrelated to housing density, and while there is some
linkage in the case of heating, even there, the negative effects of
forcing prices up to the point where much of the populace lives in
ancient and poky housing stock, may outweigh the heating costs benefits
of denser living. And besides, there are other ways to reduce heating
costs (and related emissions), such as heat pumps and good insulation,
it's not necessary to push people to live in utterly cramped
conditions, because that's supposedly the way to go to protect the
climate.
Michael Tobis
> conditions, because that's supposedly the way to go to protect the
> climate.
While there is something to your points, you inadvertently undermine
your argument. I frankly can't avoid thinking the following.
If "utterly cramped conditions" encourage you and others like you to
have fewer than the five children to which you are otherwise inclined,
I would consider it an extremely effective way to protect the global
environment.
Meanwhile, everyone is discussing whether the Stern report gets the
right answer.
I'd rather discuss whether the Stern report asks the right question.
mt
gerh...@aston.ac.uk
growth. But if that is the objective, it seems rather perverse for the
UK government to simultaneously shell out some £13,000 or so in child
tax credit and child benefit for a low income couple with 5 children.
Besides, Germany has negative population growth, and the kind of
planning laws giving both steady prices and much more garden space, and
for new build, larger detached houses with a real garden.
--------------------------
You will find a lot of interesting material in chapter 2 and in the
technical annex on ethical frameworks (both of the Stern Review
Report).
You write:
"This doesn't mean our well-being will stop growing, but it may well
mean that our cumulative wealth, measured in dollars or something like
that, must stabilize."
I do think that when people talk about economic growth as an
unqualified good, they usually mean growth of "general welfare". And
who could be against that?
I also think that it is well understood that GDP is a rather imperfect
proxy of "general welfare", and while GDP can grow at infinitum, it
would have to be more and more knowledge intensive, as energy and
materials flows cannot grow ad infinitum in a finite world.
Eli Rabett
Does anyone know of anyplace with an intelligent discussion of the
discount rate issue. I've gone through parts of the Stern report and
am somewhat stymied by the technical detail.
Michael Tobis
Hidden Order: The Economics of Everyday Life (Paperback) by David
Friedman, who, if I understand correctly is the nephew of the
celebrated Milton Friedman.
It is a lively and unconventional treatment of what I take to be the
conventional wisdom these days. For a scientist or engineer, it is an
easy read. The discount rate is covered.
I also took an undergraduate intro to economics course at Northwestern
an epoch and an eon ago, but I didn't retain much. My recollection is
that the flavor was very different and much more favorable to public
intervention in the economy. Still, my impression is that the tendency
to assume away huge issues and then derive airtight arguments based on
those dubious assumptions was comparable.
mt
Alastair McDonald
I agree with everything you say. The science of economics is about the
allocation of scarce resources. But as the economist J K Galbraith pointed
out, when the Europeans arrived in North America they found that the
resources there were not scarce. There was enough land for everyone,
provided the native population was removed, and there was even gold to be
had for the picking, and later oil. This paradigm of unlimited resources has
become embedded in the American psyche, and exported back to the rest of the
developed world through US (and Australian, they had a similar experience)
dominance of the media, for instance Hollywood and CNN. (Rumsfeld seemed to
think that by invading Iraq, he would change all the Iraqis into rich
Americans.)
Now, it is not only Americans who believe that everyone can achieve the
American Dream. But in the US it is turning sour. The land is all owned,
and expensive. The gold fields are worked out, and the gold towns that grew
around then have changed to ghost towns. The US oil is on the wane and
unable to provide enough to maintain Americans in the way of life to which
they have become accustomed. Now the world's oil resources are about to
wane. Soon everyone is going to understand what scarce resources really
mean. That's if abrupt climate change does not hit us first!
Waur doomed,
Cheers, Alastair.
Alastair McDonald
> discount rate issue. I've gone through parts of the Stern report and
> am somewhat stymied by the technical detail.
I had a quick look on Wikipedia but their entry for Discount Rate seemed
wrong to me. 'Discount Rate' is generally taken to mean the US equivalent
of the UK's 'Bank Rate.' In the UK the Bank Rate is set by the Bank of
England, which is the governments bank. In the US the Discount Rate is set
by the Federal Reserve Boards which are also government regulators. The
national control of the banks was resisted for a long time in the US, but
without such a thing then you get the banks going bust which is very bad for
business and employment.
What is not generally known is that banks generate money. When they receive
a deposit of $100 they lend $90 and the lender pays it into his bank. His
bank then lends $80. Thus the $100 has been turned into $270 at least. If
all the money is gold, then there is a limit to how much money can be
produced, but if you have a country with paper money than the banks can
print as much as they want. You need the king to regulate the gold coinage,
and the government to regulate the paper money if you want a stable economy.
Hence the creation of the Federal Reserve Boards and the Bank of England
which every country has and are usually called "Central Banks."
The Central Banks cannot control the amount of money in circulation by
printing less, because the banks can produce more by issuing checks, and now
with the use of credit and debit cards. If a bank is going bust it can
always borrow money from the central bank at the central bank's rate - Band
Rate in Britain, Discount Rate in the USA. But when the central bank
increases its rate that forces the other banks to raise their rates too
which slows the growth of money. If the money grows too fast then you get
inflation, so inflation can be controlled by the central bank. This would
all work fine if there was only one country, but the Federal Reserve cannot
control what the central bank of China, or Japan does and so it is not as
simple as I have explained above.
J.K. Galbraith's book "The Age of Uncertainty" explains the whole thing but
it is a little out of date since it was written before the fall of
communism. However that did not dispense with the need for central banks, so
it is still a good read. J.K. Galbraith wrote "The Affluent Society" and
was an
economic advisor to President Kennedy, and US ambassador to India.
HTH,
Cheers, Alastair.
gerh...@aston.ac.uk
> to assume away huge issues and then derive airtight arguments based on
> those dubious assumptions was comparable.
It seems to me that economists question their assumptions just as
thoroughly as other scientists. What evidence is there that economists
in particular would be more prone to a "tendency to assume away huge
issues and then derive airtight arguments based on those dubious
assumptions" than other scientists would be?
Every scientist has an incentive to present their results as important
and their arguments to be on a sound basis rather than quicksand. Why
expect economists to be first in line for admitting "that the only
thing I really know is that I know nothing"?
Kooiti MASUDA
> Does anyone know of anyplace with an intelligent discussion of the
> discount rate issue.
Excuse me, I do not know where good discussion is available.
But I would like to mention my understanding of why and how discount
rate appears in the climate policy issue.
Almost everyone prefers present profit to the same amount of future
profit, probably because future is uncertain. As a matter of
subjective preference, future profit can be considered equivalent to
present profit multiplied by a factor. It is likely that the factor
decays in an exponential manner depending on the distance in time. The
coefficient of decay is the discount rate. It has a role in the
mathematical formula similar to bank rate which is applied to loans or
savings. Surprinsingly to me, it also has similar numerical value to
bank rate according to mainstream economic theories.
I think it is reasonable that future uncertain profit should be
discounted. But I do not think it reasonable that future uncertain
loss or cost should be discounted in the same way. It seems that
mainstream economists think that profit and loss are the same thing
just with the opposite signs, so they can be added algebraically. It is
against my intuition. But I do not mean that loss or cost should not
be discounted at all, since with this assumption, together with another
one that the lifetime of the whole human society is indefinite, the
present value of future loss would be indefinite.
In an earlier attempt to find optimal path of mitigation and adaptation
to climate change, Klaus Hasselmann (1999), a climate scientist,
constructed an integrated model of climate and economy. He says that
the results are strongly dependent on the ratio between the discount
rates of damage due to climate impact and the discount rate of the
means of mitigation, and that the discont rate of damage should be much
smaller in order to have reasonable (from his ethical viewpoint)
conclusion. Of course it can be said that both parts of his model was
crude.
Reference:
Klaus Hasselmann, 1999:
Cooperative and non-cooperative multi-actor strategies of optimizing
greenhouse gas emissions.
<i>Anthropogenic Climate Change</i> (Hans von Storch & Götz
Fl&omul;ser eds., Springer), 209 - 256.
Alastair McDonald
>> Does anyone know of anyplace with an intelligent discussion of the
>> discount rate issue.
My previous reply dismissing Wikipedia was wrong. The
discount rate that Stern was discussing is that described at
http://en.wikipedia.org/wiki/Discount_rate
But re-reading what you asked, viz an intelligent discussion, then
I think you need look no further than Kooti's post, especially:
> I think it is reasonable that future uncertain profit should be
> discounted. But I do not think it reasonable that future uncertain
> loss or cost should be discounted in the same way. It seems that
> mainstream economists think that profit and loss are the same thing
> just with the opposite signs, so they can be added algebraically. It is
> against my intuition.
But there is another problem. We do not know what the costs they
wish to discount will be. Nor do we know whether there will be a
slow change to a 2C rise, or a rapid change to 10C. Nor do we know
what the costs of either of those scenarios would be.
Anyway, in future I will restrict my comments to describing what the
future scenarios might be and leave the discounting of them to the
practioners of the 'dismal science'.
Cheers, Alastair.
James Annan
> I think it is reasonable that future uncertain profit should be
> discounted. But I do not think it reasonable that future uncertain
> loss or cost should be discounted in the same way.
Well, a loss can often be viewed as a smaller gain. In fact, all the
future "losses" predicted to arise from global warming are actually just
reductions in the gains (certainly at a global level, and almost always
at the local level too) that we might otherwise hope for.
If a 100% gain and 90% gain are both discounted at the same rate, then
so inevitably is the 5% "loss" arising from following the 2nd path, as
compared to the first.
James
Kooiti MASUDA
> Kooiti MASUDA wrote:
> > I think it is reasonable that future uncertain profit should be
> > discounted. But I do not think it reasonable that future uncertain
> > loss or cost should be discounted in the same way.
> Well, a loss can often be viewed as a smaller gain.
Yes, in such cases where the word "loss" is really appropriate.
What I meant may be better represented by "damage" rather than "loss".
I view a damage something different from a smaller gain.
Ko-1 M. (Kooiti Masuda)
Michael Tobis
> Every scientist has an incentive to present their results as important
> and their arguments to be on a sound basis rather than quicksand. Why
> expect economists to be first in line for admitting "that the only
> thing I really know is that I know nothing"?
It is certainly too late for them to be first; see climateaudit.org .
While I find the critiques there stubborn and intemperate and the tone
counterproductively arrogant and rude, I think that many of the
questions being asked should indeed be answered.
I would hate to follow in their footsteps with a comparably aggressive
econaudit.org . I just wonder why it is climatology rather than
economics that is subject to this level of criticism in the debate on
how to conduct policy rationally. After all, climatology is almost
entirely rooted in classical physics with its precise and inescapable
laws. Economics, on the other hand, is only a generalization of human
behavior. There may be principles that generalize human behavior, but
the overriding influence of culture (and, importantly for our
purposes, context or "environment") are at best treated as second
order phenomena.
On 11/16/06, gerh...@aston.ac.uk <gerh...@aston.ac.uk> wrote:
>
> > Still, my impression is that the tendency
> > to assume away huge issues and then derive airtight arguments based on
> > those dubious assumptions was comparable.
>
> It seems to me that economists question their assumptions just as
> thoroughly as other scientists. What evidence is there that economists
> in particular would be more prone to a "tendency to assume away huge
> issues and then derive airtight arguments based on those dubious
> assumptions" than other scientists would be?
There are quite a few simplifying assumptions. One which David
Friedman makes explicitly is that even though individual behavior is
irtrational, aggregate behavior is rational in the mean. I think it's
easy to identify cases where this is wrong. Another is that aggregate
individual behavior by others has no effect on my circumstances other
than by making products and services available to me. I believe that
there are "advanced" schools of economic though t that question this
assumption, but it seems so trivially wrong that it's a poor basis for
starting the analysis.
The assumption which is at the core of the Stern report and which is
the one I am calling into question here is that aggregate capital is a
perfect measure of aggregate wealth, where wealth is taken as some
degree of match between what an indivdual wants and what he or she
gets.
I believe any complex optimization requires a formal cost function in
order to proceed rationally. In this I agree with economists, and
probably not with most environmentalists.
However, it seems to me a fair generalization that economists assert
without argument that the appropriate cost function to apply is
(formally speaking the negative of) integrated income, or gross
national product, or perhaps in rare, more enlightened cases, gross
terrestrial product. I find this not only non-obvious but almost
certainly incorrect.
I believe, in fact, that this assumption is a root cause of the
screamingly obvious fact that contemporary global response to global
climate change is inadequate.
We can, of course, add to it the already well-known controversy about
the impact of discount rates on long-range planning. At least this is
being examined, and I was pleased to see the Economist mention it (and
the ethical issues of intergenerational equity) in their recent
featured series of articles on climate change. As is the issue of
externalities. We see economic thought treating these issues as
exceptions rather than as crucial issues.
The idea that the thing we must maximize is identical to the size of
the economy measured in some fictitious quantity such as "constant
dollars" that seems to me quite unexamined except by people who want
to eschew quantitative thought altogether. This is the question I have
the temerity to raise here.
A fluid dynamicist might simply say that "on longer time scales,
these terms are not negligible, and hence the equivalence of wealth
and capital is not valid in problems where the time scale exceeds some
constant". That is, however successful conventional economic thought
is in guiding policy on short tme scales is insufficient to prove that
it is useful at all on long scales.
I observe that complex systems behave differently, have different
balances, at different temporal and spatial scales. Why should the
governance of the world be exceptionally simple?
I am not sure I agree with Kooiti Masuda's effort toward an
alternative formulation, but I very much appreciate the effort toward
one. At present, the world seems to me caught in a debate between an
emotional, impractical and vague program (the precautionary principle
accompanied by outrage) and a pseudo-rational one based on incorrect
premises (the economic one that equates capital and wealth at all time
scales).
For those who understand the analogy, I think we should stop trying to
apply something analogous to a geostrophic approximation on time
scales where dissipation is part of the first order balance.
We need a quantitative approach to think clearly, but we need to think
about the right quantity. I don't think we know what that quantity is.
mt
Michael Tobis
It turns out somebody is using that URL, unfortunately muddying my
point. I had no intention to say anything about the actual site linked
from the URL econaudit.org .
mt
James Annan
I think the problem is perhaps not so much in loss v gain but rather in
allocating monetary values to intangibles such as species loss and
habitat change/loss. Such environmental changes are of course generally
(or even by definition) losses, especially to those with the sort of
mind-set that I challenged recently (ie who regard any environmental
change axiomatically as a loss). It's not clear to me how to decide how
much value we should attribute to the loss of the species of smallpox
virus, for example, following its deliberate extinction in the wild.
There has certainly been some debate on the ethics of this but it seems
to be essentially contained within the academic sphere and treated as an
interesting debating point, and does not seem to have had much serious
consideration in terms of health and environmental policy. (I don't know
much about smallpox and would welcome any correction if I'm mistaken on
this.)
James
Eli Rabett
There was considerable debate about whether to retain samples for the
future or kill the thing off completely. The former course was taken,
but, as I recall samples were only retained at two place (one in the US
and one in Russia).
Alexi Tekhasski
> I am not, let me make it clear, opposed to freedom, initiative,
> enterprise, or even corporate capitalism. I think all these things have
> an essential place in a functioning modern society. What I am
> questioning is the almost universally accepted idea that "growth" is
> good, or even, in the long run, well-defined.
>
You are missing a fundamental point. The "growth" itself
is not a driving force, it is an indication that a certain
society is doing well in global competition for the place
under Sun. The idea of growth is universally accepted because
if you do not grow, others will and, as result, you will be
extinct. This is a concequence of the fundamental instinct
for survival for any species, including Homo Sapiens. I don't
think any philosophical musings can overcome this, maybe
only a Second Coming of Christ... Therefore, your question
is ill-posed. Growth is not good nor bad, until you find a way
to unite the whole Globe and contain muslim's terrorism and
other forms of extremism. Even then I am not sure if you can
constrain growth in some local communities as compared to
other local places, unless geographical spatio-temporal barriers
will be eliminated by some future super-efficient transportation
technology.
- aap
James Annan
Sure, but this seems to have been a primarily scientific rather than
ethical debate (ie will the virus be useful in the future, and moreover
is it risky for country A to destroy their sample when potential enemy B
[or a number of unauthorised labs] may retain it). According to
Wikipedia, complete destruction has been authorised several times, but
the page is thin on references.
James
Michael Tobis
sense in which it is used by economists: the annual rate of change of
total economic activity measured in inflation adjusted dollars.
The question I raise is whether total economic activity is necessarily
a measure of well-being. I read Robert's reply as suggesting it *ought
to be*, and that perhaps we can manage the economy such it is. Perhaps
so, (I see some real issues about intellectual property in Robert's
vision) but that doesn't prove the case.
It is nevertheless not obviously true that the best way to manage a
society is to maximize growth in economic activity. More to the point,
I have yet to see a cogent defense of the proposition.
Without endorsing the book which I haven't read, or the website which
I have just first encountered, I am pleased to note that I am not the
first to call this into question. I just came across the following
paragraph at http://onthecommons.org/key_concepts
"As the scope of market activity expands beyond a certain point,
engulfing more of nature and daily life, it yields less and less
happiness and well-being even as it generates more and more unintended
problems. By the premises of market logic, the expanding output must
be regarded as "progress" and "wealth." In fact, the accelerating pace
of the market machine is producing more "illth" — the opposite of
wealth. Author Peter Barnes (Who Owns the Sky) has popularized this
term, coined by John Ruskin in the 19th century, to describe the
unintended but increasing destruction of nature, social disruptions,
health problems and other (unacknowledged or disguised) costs of
market activity."
Conventional measures of economic activity measure destructive
activity, frivolous activity and constructive activity additively and
indifferently. I agree that as an economy grows the proportion of
"illth" to "wellth" tends to increase, and in fact eventually the
effect of growth is likely to eventualy become perversely antithetical
to well-being.
I think in the absence of a measure that values something other than
total activity for good or ill, a lot of really important questions
are hard to answer.
Many people who want to think quantitatively want to add bells and
whistles (constraints, externalities) to the "growth is good" idea,
where "growth" is defined in terms of money changing hands.
Maybe on long enough time scales (longer than some time constant
somewhere between a year and a century) that is just the wrong way to
think about it.
mt
Alastair McDonald
>> much value we should attribute to the loss of the species of smallpox
>> virus, for example, following its deliberate extinction in the wild.
>> There has certainly been some debate on the ethics of this but it seems
>> to be essentially contained within the academic sphere and treated as an
>> interesting debating point, and does not seem to have had much serious
>> consideration in terms of health and environmental policy. (I don't know
>> much about smallpox and would welcome any correction if I'm mistaken on
>> this.)
>
> There was considerable debate about whether to retain samples for the
> future or kill the thing off completely. The former course was taken,
> but, as I recall samples were only retained at two place (one in the US
> and one in Russia).
The smallpox virus had previously also been held in the UK and it escaped,
killing an administrative worker. The professor responsible commited
suicide.
Cheers, Alastair.
gerh...@aston.ac.uk
classical physics has its limitations, but for many calculations it'll
do just fine without any need to bring in quantum mechanics. I think
something similar applies to economics, and there's recent work
considering how irrational behaviour affects economics:
http://www.nytimes.com/2003/06/28/arts/28BEHA.html?ei=5007&en=f4e0e91f59aa4a8a&ex=1372132800&partner=USERLAND&pagewanted=print&position=
Going back to your main point:
"At present, the world seems to me caught in a debate between an
emotional, impractical and vague program (the precautionary principle
accompanied by outrage) and a pseudo-rational one based on incorrect
premises (the economic one that equates capital and wealth at all time
scales)."
Monetary units are useful when we look at justifying expenditures,
because, well, those are measured in Dollars, to a point anyway.
That doesn't mean that our aim should be to maximise GDP. There are
good reasons GDP is calculated the way it is, foremost among them ease
of measurement and utility as a very close proxy for the tax base, but
it has well known deficiencies. For example, the work people do looking
after their own children is not counted, but when they go to work and
send their children to a nursery, very similar work is counted towards
GDP.
The reason for that different accounting is that money changes hands
when parents pay the nursery. That money can be taxed, and it can
easily be counted.
It is also well known that the GDP's of different economies are very
hard to add up, due to different local price levels, which is where
purchase power parity comes in.
On top of that, GDP implicitly assesses the relative needs of people
based on ability to pay. There are good reasons for that as well, but
it may undervalue the benefits of policies that help poorer people.
For example, think of ten people on 10,000 Dollars each and one income
millionaire. Based on ability to pay, redistribution adds no value, the
situation with ten people on 10,000 each and one on a million is
exactly the same as ten on 50,000 and one on 600,000. However, ten
people in that example are then a lot better off and one person only
moderately worse. So, intuition says overall welfare should be a lot
higher with the more equal income distribution. To put that into
numbers, it's useful to consider measures based on something people
have equally much of, say spare time.
The income millionaire might work another 3 hours a week to get a
million rather than 600,000 Dollars. Poor people on 10,000 Dollars
might be willing to put in another 15 hours each to get 50,000 Dollars
a year instead.
The Dolllar income millionaire migh buy himself a golf course of the
400,000 Dollars extra he earns by putting in an extra 3 hours per week,
while the ten poor people would buy say ten detached houses with a
garden with the 150 extra hours they put in a week. How much is the
golf course worth compared to the ten detached houses. Based on ability
to pay: the same. Based on leisure time given up in exchange: 50 times
less.
You write:
"We need a quantitative approach to think clearly, but we need to think
about the right quantity. I don't think we know what that quantity is."
It's impossible not to have value judgements in the quantity chosen,
but we can always use Dollars, indeed, when talking about expenditures
this is by far the most practicable, unless we imply the use of some
kind of barter arrangement,
and adjust the Dollar quantities appropriately. For example, in the
Stern review, the damages received by developing countries are valued
higher than "willingness to pay" would imply.
I accept that some analyses of climate change economics gloss a little
over implicit assumptions, though I would say that this is not the case
for the Stern review. It may have other failings, and it certainly
comes to a very different conclusion than my own (in short: a little
climate change I think will be a net positive and "action" should be
limited to research and development with the ideal carbon tax being
zero at present), but the Stern review contains some very good
background material on the assumptions implicit in economic analysis,
ie exactly the issues discussed in this thread.
Michael Tobis
versus actual quality comparison between economic and climatological
models.
My opinions follow. The words "I think", "I suggest" etc. appeared so
often in the draft that the essay seemed autobiographical. I thought
it best to remove them, even though the resulting tone is more
arrogant than I'd like. With one exception the first person singular
is removed from the following. Please preface each paragraph with "I
believe" or "I suspect"; my opinions are tentative and subject to
correction. I hope yours are too.
===
Economic thinking leads to Gerhard's conclusion being supportable:
"a little
climate change I think will be a net positive and "action" should be
limited to research and development with the ideal carbon tax being
zero at present"
This conclusion is grotesquely wrong and profoundly dangerous.
Nevertheless, many intelligent and reasonably well-intentioned people
more or less agree with it.
The prevalence of this belief depends not only on a misunderstanding
of the admittedly subtle climatological (especially holocene
paeloclimatological evidence) and not only on the unfortunate
prevalence of deliberate well-funded misinformation, but also on an
incorrect model of the purpose of policy being promulgated by
economics.
The conclusion is defensible because we metrics that are relatively
well-defined and relatively easy to measure as you point out at the
expense of those that are appropriate and correct. This (rather widely
held) opinion is not just wrong, but spectacularly wrong, and may
eventually go down in history as one of the worst errors in judgement
of all time, conceivably the single worst.
The risk is simply not worth taking. There is no getting around the
fact that we are taking a ten thousand year problem (at least) and
applying a ten year discount rate to it. No fudge factors or
corrections added after the fact will repair this.
On long time scales the environment is the first order problem and the
economy is the fudge factor. Turning it on its head is a useful
approximation for some purposes, but not for all purposes as is
commonly proposed, and emphatically not for the purposes we discuss
here.
See especially David Archer's last paragraph in the following:
http://www.realclimate.org/index.php/archives/2006/11/avery-and-singer-unstoppable-hot-air/
I am scared too.
I know and deeply respect David Archer. David knows what he is talking
about; he thinks about the climate system diligently, intelligently
and purposefully, and has done so almost every day for decades.
We are not just rocking the boat, we are lobbing torpedos at it.
Sooner or later they will hit; the one that hits may already have been
launched.
The idea of doing nothing for the time being is spectacularly out of
touch with the circumstances, as if (to wheel out Schneider's old
analogy) we were driving along the edge of a huge cliff at high speed
with the suggestion that we put off hitting the brakes until the
wheels lose contact with the road.
We do need to think quantitatively to escape the absurd catastrophe we
seem to have set our course upon. Thinking quantitatively is necessary
but not sufficient. We need to think about the right quantities:
population and demographics, food, water, energy, bulk waste, and
toxic waste. Money simply doesn't map onto the important quantities
very well; it aggregates activities that are beneficial in the long
run with those that are destructive.
Economics should provide a minor course correction to environmental
policy, not the other way around.
mt
James Annan
>
> Economic thinking leads to Gerhard's conclusion being supportable:
>
> "a little
> climate change I think will be a net positive and "action" should be
> limited to research and development with the ideal carbon tax being
> zero at present"
>
> This conclusion is grotesquely wrong and profoundly dangerous.
> Nevertheless, many intelligent and reasonably well-intentioned people
> more or less agree with it.
>
> The prevalence of this belief depends not only on a misunderstanding
> of the admittedly subtle climatological (especially holocene
> paeloclimatological evidence) and not only on the unfortunate
> prevalence of deliberate well-funded misinformation, but also on an
> incorrect model of the purpose of policy being promulgated by
> economics.
>
> The conclusion is defensible because we metrics that are relatively
> well-defined and relatively easy to measure as you point out at the
> expense of those that are appropriate and correct. This (rather widely
> held) opinion is not just wrong, but spectacularly wrong, and may
> eventually go down in history as one of the worst errors in judgement
> of all time, conceivably the single worst.
>
> The risk is simply not worth taking.
I'm sorry but I do not find proof by repeated vehement assertion to be
particularly convincing. I wouldn't go so far as to endorse gerhaus's
assessment above (I think it is quite reasonable that we should make
efforts to preserve the natural environment, as indeed we already do in
many ways, and there are many good arguments to reduce dependency on
fossil fuels irrespective of climate change), but all this talk of
precipices and catastrophe and stuff seems rather silly. Sure, it's a
nice image that grabs the headlines, but it also drowns out rational
discussion and pisses off some of us who want to try to understand the
climate system rather than concentrate on producing the soundbites that
will convince people to "do something".
> See especially David Archer's last paragraph in the following:
>
> http://www.realclimate.org/index.php/archives/2006/11/avery-and-singer-unstoppable-hot-air/
>
> I am scared too.
>
> I know and deeply respect David Archer. David knows what he is talking
> about; he thinks about the climate system diligently, intelligently
> and purposefully, and has done so almost every day for decades.
FWIW, it was David Archer's comments about no change being the best
change that prompted my original post "Is (climate) change bad?"
>
> We are not just rocking the boat, we are lobbing torpedos at it.
> Sooner or later they will hit; the one that hits may already have been
> launched.
>
> The idea of doing nothing for the time being is spectacularly out of
> touch with the circumstances, as if (to wheel out Schneider's old
> analogy) we were driving along the edge of a huge cliff at high speed
> with the suggestion that we put off hitting the brakes until the
> wheels lose contact with the road.
>
> We do need to think quantitatively to escape the absurd catastrophe we
> seem to have set our course upon. Thinking quantitatively is necessary
> but not sufficient. We need to think about the right quantities:
> population and demographics, food, water, energy, bulk waste, and
> toxic waste. Money simply doesn't map onto the important quantities
> very well; it aggregates activities that are beneficial in the long
> run with those that are destructive.
It seems like you are having your cake and eating it.
You earlier appeared to be proposing some sort of metric of human
happiness as a more appropriate one (rather than wealth) for a policy
objective. However, it is not entirely clear whether you intend it in
this manner, but your talk of "absurd catastrophe" (and indeed all the
similar rhetoric about climate change) is bound to be interpreted in
materialistic terms. Do you think the "catastrophe" is that the last few
breeding pairs of humans will be eking our a miserable existence in the
polar regions, or that humans will be feeling guilty about wiping out a
large number of species?
James
Alastair McDonald
> particularly convincing.
I am afraid that I find your proof by repeated implicit argument that there
is not a need to worry, not to be particularly convincing either. It
seems to be based solely on your view that to suggest that there might
be a danger is 'rather silly'. One could call that argument an ad hominem
by implication, or perhaps just silly :-) It has no scientific or rational
basis.
It is just part of your belief system, instilled in you by your early
environment.
> precipices and catastrophe and stuff seems rather silly. Sure, it's a
> nice image that grabs the headlines, but it also drowns out rational
> discussion and pisses off some of us who want to try to understand the
> climate system rather than concentrate on producing the soundbites that
> will convince people to "do something".
Where is your rational discussion? Where is your understanding of the
climate system? What is the cause of Dansgaard-Oeschger events?
And if you do not know the answer to that, and as far as I know no-one
has come up with an accepted cause, then how can you be sure that
another will not happen in the future?
It is your 'head in the sand' attitude, defended by calling people who
think about these problems 'Chicken Little that really pisses me off!
Cheers, Alastair.
gerh...@aston.ac.uk
> versus actual quality comparison between economic and climatological
> models.
These models are difficult to compare and "quality" would need to be
defined in some fashion to allow any comparison whatsoever.
> The prevalence of this belief [ideal carbon tax at present = 0 and a little climate change = good] depends [...] also on an
> incorrect model of the purpose of policy being promulgated by
> economics.
Most economic modelling seems to come up with an ideal carbon tax
greater than zero. I wouldn't say that's based on "incorrect" models,
but rather on diffferent value judgements and assessments of the
future, than either yours or mine.
> The risk is simply not worth taking. There is no getting around the
> fact that we are taking a ten thousand year problem (at least) and
> applying a ten year discount rate to it. No fudge factors or
> corrections added after the fact will repair this.
The appropriate discount rate to use is widely discussed, and while the
majority of economic climate models I am aware of uses a discount rate
of something like 5%, there are other estimates that use a rate of 0.
> Money simply doesn't map onto the important quantities
> very well
It's fair enough to point out that GDP is an imperfect proxy for
welfare, but when we are talking expenditures, why shouldn't we express
those in units of currency?
gerh...@aston.ac.uk
> efforts to preserve the natural environment, as indeed we already do in
> many ways, and there are many good arguments to reduce dependency on
> fossil fuels irrespective of climate change
I certainly agree with the above, and as far as practical policy is
concerned I particularly like replacing coal fired power stations with
nuclear generation and higher petrol taxes.
I just don't take that view because of climate change, this is largely
because
1. I am quite optimistic on human adaptability and the benefits of a
little bit of climate change
2. We can reduce emissions to less than 0, if need be, after 2050
3. The worst catastrophe I think is possible is very rapid sea level
rise from disintegrating ice sheets and that I see as very low
likelihood and
4. Even that would not be Armaggedon, it would just be very costly
indeed (20-30% of world GDP for a few decades) to resettle one or two
billion people, or, far more likely in my opinion, to take the
necessary action (see point 2) to prevent it happening in the first
place
The Hansen argument seems to me to be roughly as follows:
"If we don't start reducing emissions now, then between 2050 and 2100
we might find it very hard to reduce emissions to zero, and then we
might find that ice sheet disintegration has started and between 2100
and 2250 world sea levels rise by 20 or 30 m, which is too terrible to
contemplate."
To put my counterargument in numbers:
50% probability that we'll go to zero anyway by 2050-2100 as fossil
fuels become obsolete, net benefit 1-2% of GDP
40% probability that emissions will continue to rise, but sea level
continues to be a modest problem, also net benefit of 1-2% of GDP
10% probability that we'll have to invest heavily after 2050 to reduce
emissions / temporarily halt warming by injecting aerosols into the
atmosphere, to prevent extreme sea level rise, discounted net cost 1-2%
of GDP
And if the world in 2050 is so poor and conflict ridden it can't get
its act together to prevent 20-30 metres of sea level rise over the
next hundred years, that'll be more of a problem than climate change
itself.