"System change is now inevitable. Either because we do something about it, or because we will be hit by climate change. '...

"We need to develop economic models that are fit for purpose. The current economic frameworks, the ones that dominate our governments, these frameworks... the current economic frameworks, the neoclassical, the market frameworks, can deal with small changes. It can tell you the difference, if a sock company puts up the price of socks, what the demand for socks will be. It cannot tell you about the sorts of system level changes we are talking about here. We would not use an understanding of laminar flow in fluid dynamics to understand turbulent flow. So why is it we are using marginal economics, small incremental change economics, to understand system level changes?"

Friday, January 9, 2009

Tim O'Reilly Gets It

Publisher and open source advocate Tim O'Reilly gets it:
Since Bernie Madoff has put Ponzi schemes back onto the front pages, it's worth considering whether we are all complicit in the biggest Ponzi scheme of them all, the idea that the global economy can grow indefinitely.
I grew up on the idea that humanity would grow out into space, and that resources were for all practical purposes infinite. It may well be that in some possible worlds, that could still be true, but it's increasingly looking like we're going to be stuck here with only one world's resources to draw on. And while most reasonable people are aware that we're using up much of our children's inheritance, and handing them debt in exchange, I don't think as a society we've really come to grips with the consequence of that knowledge.
We're rather like the investors who were complicit in Madoff's scheme, playing along while the getting is good. At least some of us know that the game is rigged, but we're not going to be the first to blow the whistle.
It's clear that getting to a steady-state economy will be hard, perhaps even impossible (although it's worth noting that living systems have accomplished that feat.) But what a challenge! How do we keep the dynamism of modern capitalist economies without borrowing from the future? What does it mean to keep the real costs of what we consume on the balance sheet? Will the economy of the future be built on aesthetic value exchange (the whuffie of Cory Doctorow's imagination), with renewable energy in harness and physical materials seamlessly recycled. Great questions, great opportunities for us to invent the answers!
Professional climate worrier Joe Romm starts to have an inking:
One of my New Year’s resolutions is to blog more about the general lameness of the economics profession when it comes to energy and climate issues [Note to self: How about losing a few pounds?].

I was in the midst of putting this resolution off for a few weeks when I saw a quote by Robert Stavins that seemed to sum up the value-subtracted that economists bring to the world.
But he still can't resist people who get the wrong problem wrong, thus coming up with the right answer.
I know it is hopeless ask the media and policymakers to stop listening to economists, but if anyone can tell me of any intelligent thing a major economist has recently said on energy or climate other than Weitzman — (see Harvard economist disses most climate cost-benefit analyses) — or Stern (see Stern admits report “badly underestimated” climate change risks), I’ll cook them a soggy dinner.
Weitzman at least has a point, albeit one I have been making for fifteen years.

Stern? Stern values the destruction of the biosphere in terms of lost productivity, and then twists the numbers a bit by artificially lowering the discount rate. Is this really the right way to think about preserving the viability of the Earth?

Anybody who values climate policy in terms of growth on a hundred year time scale that way should start over. As James Annan points out, why should we care whether our descendants are nine times wealthier than we or ten? What foolishness.

The game is over kids. Put the dice and the tokens away. It's time to get serious and clean up the house. Maybe we can play again later.


Dano said...

To me the more cogent Sterling line was this:

Communism, capitalism, socialism, whatever: we’ve never yet had any economic system that recognizes that we have to live on a living planet. Plankton and jungles make the air we breathe, but they have no place at our counting-house. National regulations do nothing much for that situation. New global regulations seem about as plausible as a new global religion.

because this is the crux of what we face (and what I was getting at in commenting on Stavins' silly comment): our current systems cannot fix the situation we are in.

We see this in our economic system, one that fetishizes the economy, but our mainstream economists can't grasp the simplest human-ecosystem interactions - and yet they make policy. Disastrous policy.





Hank Roberts said...

Thank you Michael. Utterly sane.

Most of the money the last 50 years or so was imaginary claims on "a future not our own" -- debt with nothing to secure it but the cornucopian myth.

I'd still, faintly, hope we-the-species gets into space. I don't know why we're not placing tag-and-release packages on anything that comes near enough to Earth to touch with a transponder. I don't know why we haven't built a second generation of those that incorporates an ion engine and enough telecom to slowly, over decades if needed, tweak them into a useful stable position.

Except investing in space isn't like investing in a new world, a new continent. There's no easy pickings. No big trees to turn into ships. No clouds of passenger pigeons for market hunting for meat pies. No salmon so thick people get sick of eating them. Not when we go into space. Only the need to invest for the multi-generation long term.

The little bit of amateur botanical restoration I've done in my copious spare time, and the little bit of preservation of old forest, are what I hoped decades ago to somehow leave going making wildlife for the longer term.

The economy has no easy way even to find people to hand them off to who can be trusted to leave them alone for another lifetime after mine. Everything's biased toward stripmining nature, even the little bit that's left.

I wish we were smarter.

John Mashey said...

Take a look at e3network - Economics for Equity and the Environment, starting with

Economists' Statement on Climate Change.

One of them is Frank Ackerman, who published a nice analysis on the errors in Lomborg's Cool It!, from an economist's view. That's a free copy of something published in Climactic Change.

guthrie said...

Thanks John, lists of Lomborgs errors are always useful.

Hank, the general consensus seems to be that given the foreseeable future of technology, space will be out of reach for 99.9999% of humanity. Secondly, the times involved in such activities as sticking ion engines on objects is in the order of decades, thus no CEO or politician will be able to claim that they have made things better before the next election.

Thirdly, we don't quite have the technology for spiffy ion engines just yet.
But you are entirely correct regarding extraction and how we need to get smarter and more long term.

I can sort of imagine an ecological accounting method, whereby the complexity in a region, number of species, robustness of the ecosystem, and so on is recorded and measured with the aim of preventing extinctions and increasing the total complexity of global ecosystems.
There would be a few problems with it I am sure.

Hank Roberts said...

I wonder if the "output shortfall" shown here is a measure of the overshoot problem -- is "recession" actually about the right level of economic activity for the limited planet, reflecting less strip-mining of what's left? This looks like a downward trend overall:


Seems to me the whole 'financial leverage' notion of multiplying money by lending it out at compound interest has always been utterly incompatible with life on Earth, otherwise any bank account opened a few centuries ago would be worth more than the planet is.

This must be something economists deal with, if only by "in the long run we are all dead" argumentation.

Michael Tobis said...


I have a hard time with Krugman's graph, which nominally spends a lot of time at substantially over 100% of potential. This would make most non-economists uncomfortable.

So I don't know what to say to that, or to Krugman's argument about deflation. It seems to me almost as handwavy as the idea that there will be a normal "recovery" from the present event, which Krugman justifiably points out is essentially baseless.

To your large point, I agree that growth as currently understood cannot go on forever, that the sustainable level is likely already exceeded in some sense, and that therefore in the long view a contraction is necessary and healthy.

I have proposed the name "the great relaxation" for the present event, to accentuate its beneficial aspects. Someone else has come up with "the great unwinding" which seems nicer to me.

Google has interesting things to offer under the "unwinding" rubric. Check out this article, from 2005, from India, for instance.

"Unwinding" is apparently financial jargon for cascading credit crunches, but it also has connotations of kickin up your heels, puttin Jimmy Buffet on the boom box, and mixin up a margarita or two.

Everything you know (about economics and finance anyway) is wrong. Might as well relax and enjoy life while you still can.

A little less ambition would suit us all well.

Dano said...

Hank asks:

is "recession" actually about the right level of economic activity for the limited planet, reflecting less strip-mining of what's left? This looks like a downward trend overall:

No. Lower than that to correct the overshoot. We're way over - how much depends upon whose papers you prefer.

The other thing about the monetary levels is that a lot of the "Wealth" we "Lost" was fake money anyways (but what does that say about the situation?).