"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?"

Wednesday, May 27, 2009

Seeking Realistic Economic Scenarios

I find it enervating to listen to economists trying to explain our circumstances without reference to resource constraints, as if resources were a separate topic. Krugman's backing of Waxman-Markey carries some weight with me, but not as much as it would if he didn't totally neglect resource constraints.

Some of the things Tidal has said in comments here fit in with this point of view; essentially driving the collapse of the Ponzi scheme is the fact that our ability to borrow from the future is now facing substantive limits which it did not face before. The key resource constrain is usually taken to be peak oil; CO2 emissions constraints function similarly.

I am looking to collect articles which tie the current economic disruption to resource and especially energy constraints. Here, from the Oil Drum, is an interesting one which  manages to blame Richard Nixon for everything. 

I don't share the article's extreme pessimism (or revolutionism?) about the future of capitalism; I think the system will limp along and eventually learn to live within limits. But perhaps my own expectations aren't worth very much. Anyway I am not ready to talk about them at length.

I do share the article's sense that resource constraints and especially energy resource constraints are related to the current crisis for reasons other than a mere coincidence in time. To read even Krugman or DeLong is to believe that the problems of the economy and the problems of its key resource are completely decoupled. It's hard to find professional economists who make more sense than these guys and yet they aren't making much sense at all.

To be fair, Krugman does seem to understand that oil is finite. It's just that he doesn't seem to think that's very important, or relevant.

James Kunstler's May 18 blog entry is also worth reading. (And don't miss his eyesore of the month series if you are feeling sardonic!) But is there somebody convincingly arguing for a middle between collapse and "recovery"? Or is growth so hardwired that near-zero growth simply doesn't happen.

I'm looking for other articles wherein resource constraints are tied to the economic prognosis without going into revolutionary or Kunstlerian postapocalyptic scenarios. Any ideas, anyone?

Note: I am not looking for ecological economics, Daley, Ayres, etc., unless and to the extent that they specifically tie their analyses to the recent economic disruptions and the prognosis.


Kim said...

This post is from a geologist, not an economist, but he discusses oil prices and economic disruptions from time to time:


Marion Delgado said...

As you know, Michael, I disagree with you and think the green jobs hype is not hype when you realistically project the non-green jobs (level the playing field). But that's beside the point - I think you should evaluate the Willits Economic Localization group and facility - http://www.postcarbon.org/groups/willits

For what it's worth, they are very ambitious in scope and try pretty earnestly to account for everything along every possible dimension.

I would add that Willits and Ukiah and on down to Hopland have the potential, IMO, to be the Silicon Valley of Green technology - it's one region where a lot of people are congregating.

By the way, economics is multi-discipline, multiple inputs, multiple processes, multiple outputs system.

One of the things I've done for the regional economy is converted to as much free or open source software stuff as I could - the money made in that sub-industry is tech support, and it's usually fairly local or at least regional or national. And no, or very little, middleman action.

My main computer is a little netbook with Ubuntu on it, for instance. Not made in America, but I would have paid another $50-$100 to make up the labor costs.

The point is, people can help the economy any way they can - consuming less imported products, being more energy efficient, etc. - while we work towards a new stable point.

It's not just the climate that has inertia and is heading towards a new equilibrium at a different level; there are a lot of parallels to the world economy.

David B. Benson said...

Economists tend, IMHO, to view the industrial revolution and economic innovation as givens, unending.

Much more expensive energy has many implications; I doubt that economists have thought this through...

John Mashey said...


The generalization "I doubt that economists have thought this through..." turns out not to be very actionable.

How about an actionable version:

a)Some economists don't seem to think about this at all, because it isn't their thing.

b) Some seem to think energy doesn't matter much.

c) Some think it matters a lot.

So, let's go find the members of group c), see what they say, and compare with b), and see which ones make more sense.

Then, if it appears that c) makes more sense, and it's a minority viewpoint, try to understand why, and how they can be helped to get their work more widely accepted.

This might lead one to Charlie Hall, Jeff Rubin, Vaclav Smil, Robert Ayres, and Benjamin Warr, for example.

For instance, see if you can get your library to get new book by Ayres & Warr. Check the blurbs...

Or try the Sovacool&Brown book, read reviews.

Or the Leclerc+Hall book, read review.

Jeff Rubin has new book, "Why your world is about to get a whole lot smaller". I haven't read it yet.

or Frank Ackerman's book (although that's more on climate, but still good. Read the review.

And, maybe look at E3 network: Economics for Equity and the Environment.

(That's also different from energy, but its' still interesting.)

Michael Tobis said...

John, thanks for the recommends, which as always are interesting. But I'm not sure they are responsive to my question, this time.

Do any of these people find a resource constrain basis in the current economic tangle? A tie-in from the limits to the growth imperative to the real estate bubble? From the oil price spike to the AIG fiasco?

The two questions I'm asking are 1) Is the onset of these two problems tied or coincidental? 2) Even if there was no causal link, is the indicated response complicated by having both classes of problem simultaneously?

I am afraid everybody is looking for nails to fit their hammers. It feels to me like one big problem where nobody has the intellectual ammunition lined up.

As William Connolley summarized it, the plan seems to be to get the economy back on track to growth so that we can afford to slow it down.

Does that strike anyone as wise?

tidal said...

I haven't read Rubin's new book ( which John also mentioned), but I think that it is in the direction you are looking.

Here is a CBC interview yesterday. The splash is: "What do subprime mortgages, Atlantic salmon dinners, SUV's and globalization have in common?"Here's another interview. Jeff was busy boy yesterday...

So, not having read the book, I can't comment on whether it meets your criteria, but I would look at some other reviews. I think there may have been some on Energy Bulletin or The Oil Drum.

I also went to see Thomas Homer-Dixon last week, and he has a new book - "Carbon Shift" - of essays, one of which was by Rubin. Tad didn't refer specifically to Rubin, but at one point he said something to the effect of "It's been fairly conclusively shown that the ultimate cause of the financial crisis was the oil price shock sucking any slack out of the system."... and then proceeded not to provide any substantiation for this, but it seems clear that is an idea that Rubin discussed with him...

I've got some other ideas for sources, will try to post.

My problem with Rubin in the past is that he is extremely sure of himself. That's a long standing reputation - he's made big calls, some right, some wrong. In this incarnation, there is just one big thing driving everything else - cheap oil - and there is only one forseeable outcome - expensive oil, big inflation, de-globaliztion... If there is one thing I have learned, it's not to get overconfident. I could see a scenario where if you deprive the global economy of enough cheap energy, it drives down income faster than liquid fuel supplies are depleting. So, even at the lower quantity, we could get lower prices for oil and asset deflation. Expensive oil - deep offshore, oil sands - might just get shuttered. I don't know how it plays out, but I just think there are many more paths to a reconfigured economy than just Rubin's scenario.

thingsbreak said...

I tried posting at both Krugman's and DeLong's. So far no replies.

David B. Benson said...

John Mashey --- Thanks.

I suppose my views are permanently colored by the comment of a local academic economist: "Macroeconomics? Nah, I don't believe in it."

And then tried to explain why. Too technical for me, except the bit roughly about "made-up" variables.

Hank Roberts said...


has a variety of links to various assessments

Gold said...
This comment has been removed by a blog administrator.
Dano said...

Resiliance Alliance blog.



Dano said...

Also, but I see something from Tol in there...



David B. Benson said...

Ike Solum writes about subsidies.

Hank Roberts said...



"...The second view is that ... given time we’ll drill more wells, plant more acres, and increased supply will push prices right back down again.

The third view is that the era of cheap resources is over for good — ...we’re running out of oil, running out of land to expand food production and generally running out of planet to exploit.

I find myself somewhere between the second and third views. ..."
"... Suppose that we really are running up against global limits. What does it mean? ..."

"... Paul Krugman (1994) observes that "Economic growth that is based on expansion of inputs, rather than on growth in output per unit of input, is inevitably subject to diminishing returns."


Not much there.

Hank Roberts said...

http://www.stevens.edu/csw/cgi-bin/blogs/csw/?p=373 has a book review:

"... the Center for Science Writings is giving its Green Book Award to Sachs for his 2008 book Common Wealth: Economics for a Crowded Planet. A followup to his acclaimed 2005 bestseller The End of Poverty, Common Wealth proposes detailed solutions not only for extreme poverty but also for related global problems such as overpopulation, resource repletion and environmental degradation. Common Wealth is an extraordinarily optimistic book, but it is also hard-nosed, informed, detailed and realistic in its diagnoses and prescriptions. Edward Wilson, winner of the 2007 Green Book Award, calls Common Wealth "a state of the world report of immediate and enormous practical value."

Michael Tobis said...

Here's one

"The Peak Oil Crisis: Watching a Mega-Crisis
THURSDAY, 04 JUNE 2009 14:51"

Michael Tobis said...

Robert Rapier

"The Long Recession"

Michael Tobis said...

A little off topic, but worthy of note (thanks to TB, iirc, for the link)

Taking political philosophy back from the economists

Michael Tobis said...

via TB on twitter:

thingsbreak @mtobis One more, this one not in an ecol econ or energy journal, but a 'mainstream' one: http://bit.ly/8VNpZ

thingsbreak @mtobis Some PDFs coming at you: http://bit.ly/17Ni80 http://bit.ly/5WRiG

Michael Tobis said...

jorge_salazar Connecting the econ crisis with the eco crisis, RT @russ_walker: Tom Friedman chats w/Grist about climate challenge: http://bit.ly/tBDAp