Jim Manzi’s Cherry Pick

This follows on to previous discussion of Manzi here. Manzi’s original piece is at The New Republic.

First off, what are integrated assessment models?

The DICE model, developed by William Nordhaus, is a dynamic integrated model of climate change in which a single world producer-consumer makes choices between current consumption, investing in productive capital, and reducing emissions to slow climate change.

… Current carbon emissions add to atmospheric concentrations via a fixed retention ratio, and realized temperature change is modeled by a three-box model representing the atmosphere, mixed-layer upper ocean, and deep ocean. Damage from climate change is a quadratic function of realized temperature change with a 3-degree change calibrated to cause a 1.3 percent world GNP loss.

(emphasis added)

Begging the question, wouldn’t you say?

Jim Manzi bases his approach to the future of the world on the fact that IPCC WG II quotes the results of such models as showing modest impacts of climate change, but those modest impacts are built in. These are not simulations. These are nothing like the physics based models we have in physical climatology. These are guesses.

What does IPCC really have to say about them, other than the graph which Manzi ultimately references?

It is likely that the globally aggregated figures from integrated assessment models underestimate climate costs because they do not include significant impacts that have not yet been monetised. It is virtually certain that aggregate estimates mask significant differences in impacts across sectors and across regions, countries, and locally. It is virtually certain that the real social cost of carbon and other greenhouse gases will rise over time; it is very likely that the rate of increase will be 2% to 4% per year. By 2080 it is likely that 1.1 to 3.2 billion people will be experiencing water scarcity; 200 to 600 million, hunger; 2 to 7 million more per year, coastal flooding.”

I am no great enthusiast for the AR4 WG II report, and they are not entirely free from responsibility for Manzi’s grossly dangerous conclusion. But a fair reading of the executive summary ought to have been enough to dissuade Manzi from using the figure in question. The text which he advises the world to base its entire future is an egregious cherry pick.

Nobody who calls GCMs into question should pay the least attention to the Nordhaus type model, which is grossly underconstrained by theory or observation, and instead is constrained by guesswork.

Manzi takes a different tack, treating IPCC as authoritative. Thus he accepts or claims to accept the WG I sensitivity spectrum, and uses this as cover for picking a single chart out of WG II as representative of IPCC’s impact assessment. But that choice is not representative of IPCC’s impact assessment at all, and is explicitly disavowed in the chapter executive summary.

I hope Manzi will acknowledge his error and change his position.

Manzi’s Folly and Economics in General

Remarkably, an IPCC WGII report (see p 17) shows the “cost” of a 4 degree C temperature increase to be on the order of 3% of net economic output.

Jim Manzi uses this assertion to conclude that Waxman-Markey is a bad idea. I would go further. If 3% were a measure of anything realistic it would be hard to argue for the sort of policy measure that we are all so urgently arguing for. So I can’t provide a counterargument to Manzi. He even goes so far as to address the fat-tail argument (though of course he misattributes it to Weitzman… sigh…) but it’s all calibrated against that 3% .

I think it becomes crucial to track down that 3% and address it. Which makes us all economists, whether we want to be or not. Boulding’s observation seems germane; total capital is NOT actually the integral of net economic output. It’s where our capital stocks are in 2100, not our GDP, that matters. If climate change is marginal, we should let the chips fall where they may, but the conclusion that only 3% of net economic output is at stake seems totally disproportionate to the risks. IPCC or no (and I’ve never been a big fan of WGII) I have a lot of trouble believing it.

Hope to pick this up again at some point.

Update: Nice followup here. UT doesn’t have priv’s to the referenced article, unfortunately. Is this any way to run an intelligentsia?

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.

The Great Relaxation Revisited

I have tried to make the case that an economic slowdown properly handled can be a good thing on balance, even though it will be certainly stressful in the short run for people who are unprepared for it. I proposed repackaging the whole business, dropping the depressing words “depression” and “recession” in favor of “relaxation”, on the presumption that the level of activity in the most advanced economies is already excessive.

There’s a pair of related articles that recently appeared on the Oil Drum by Nate Hagens The first, called “It’s the Ecology, Stupid” (aargh, why didn’t I think of that one!) Hagens summarizes the situation elegantly:

Our current socio-ecological regime is founded on a worldview that emerged during a period—the early Industrial Revolution—when the world was still relatively empty of humans and their built infrastructure (33). Natural resources were abundant, social settlements were sparser, and inadequate access to infrastructure and consumer goods represented the main limit on improvements to human well-being. This set of circumstances has been called an ‘‘empty’’ world (34). In an empty world, it made sense to ignore relatively abundant ecosystem goods and services, and to favor the concentration of wealth in the hands of the few so that it could be invested and focus solely on increasing the consumption of market goods and services, which were relatively scarce. If wealth had to be concentrated in the hands of the few where it would be invested to fuel future growth, rather than distributed to the many where it would be consumed at the cost of growth, this was a sacrifice the present had to make for the future.

Our current worldview of what is desirable and what is possible was obviously forged in this empty world context. For example, ‘‘recession,’’ our word for economic decline, is defined as two or more consecutive quarters in which the GDP does not grow. Unending physical growth of the economy is only possible within a system unconstrained by any biophysical limits. Our current institutional and technical approach is also an extension of a long-term trend of adaptation to an empty world. Western society has increasingly favored the institutions that promote the private sector over the public sector, capital accumulation by the few over asset building by the many (35, 36), and finance over the production of real goods and services.

Our current [worldview is] failing to meet our needs in a changing world. Anthropogenic climate change, peak oil, biodiversity loss, rising food prices, pandemics, ozone depletion, pollution, and the loss of other life-sustaining ecosystem services all pose serious threats to civilization. These crises can be traced back to one, albeit complex problem: we have failed to adapt our current socioecological regime from an empty world to a full world. The aspects of our regime that no longer serve us in a full world can be grouped under two interrelated themes: a belief in unlimited growth, and a growing and unsustainable complexity.

In fact, I wish I had written pretty much the whole thing.

the task is huge and will take a concerted and sustained effort if we hope to make the transition a relatively smooth one. It will require a whole systems approach at multiple scales in space and time. It will require integrated, systems-level redesign of our entire socio-ecological regime, focused explicitly and directly on the goal of sustainable quality of life rather than the proxy of unlimited material growth. It must acknowledge physical limits, the nature of complex systems, a realistic view of human behavior and well-being, the critical role of natural and social capital, and the irreducible uncertainty surrounding these issues. It is also important to recognize, however,that a transition will occur in any case, and that it will almost certainly be driven by crises. Whether these crises lead to decline or collapse followed by ultimate rebuilding, or to a relatively smooth transition depends on our ability to anticipate the required changes and to develop new institutions that are better adapted to those conditions.

Hagen’s followup is to call attention to an article by Jay Hanson that most people, myself included, would find excessive. Like the Unabomber tract, there are interesting ideas buried in the madness and it’s not unworthy of your attention, though I would like to make clear that I don’t think it’s remotely ethically sound and so it’s fortunate that it’s impractical as well.

But I did like the idea that we should replace “avarice” with “sloth” as the key vice of our age. “Lazy is good” needs to be our motto. “Shoddy is better than nothing”. Or how about “Less fear, more beer.” In times of shortage, laziness is immoral. In times of glut and surplus, ambition is immoral. It’s the common good that requires us to scale back our ambitions.

Jay Hanson (no relation to Jim Hansen, presumably) has been talking doom at http://www.dieoff.org for some time. Like most peak-oilers he is infected with a truly wretched sense of design as well as a sort of apocalyptic vocabulary, but he makes more sense than you might want to admit.

On a related note I finally had a chance to actually confront an economist today about some of this stuff. She had given a talk to the Ethical Society of Austin about the roots of the economic crisis; you know, credit swaps, excessive mortgages, and all. The word “resources” never appeared.

Of course, I, member in good standing of the Virtual Club of Rome, raised the issue of limits to growth. The response was telling. It was nonsensical to talk about limits, since they were so abstract and obviously so far into the future. Substitutability. Outer space. Technology. Bla bla bla. This was all to be expected and all eventually came up.

But the strangest comment was the first one: “Why would you want to limit growth?” As if the laws of physics represented a political position! Talk about “head-slappingly false”.

I think the tautology is pretty obvious, but it’s outside the box for economists. I mentioned it to her and she seemed to hear it, but she didn’t find it germane to her interests or as providing a realistic constraint to her models and theories.

We are just not talking their language. It’s like trying to bring the hockey rule of the blue line into a conversation on swine flu.

Ultimately, it seems there are people who have tremendous faith in technology who don’t really understand or care about the principles of thermodynamics. I suspect if you could catch Jeffrey Sachs in an unguarded moment he might admit to getting it. Other than the ecological / environmental economics fringes, though, you will have a hard time finding another economist who cares very much about the earth as a physical system, not even the most down-to-earth ones, like Stiglitz or DeLong or Krugman.

The most mind-boggling thing was that the economist I was talking to thought our problems were because politicians weren’t paying enough attention to economists. It’s really like these people live on a different planet.


Image from The Non-Consumer Advocate from a related article called “In Defense of Non-Productivity


The Tautology and Its Weaknesses

A given economic growth rate can be sustainable only if the average impact per unit wealth declines at an equal or greater rate.


I argue that this is certainly true if one grants that a sustainable behavior must be sustainable indefinitely.

Shortly after coming to this pretty firm conclusion and wondering how smug to feel about it, I realized that it’s just a consequence of the old I = PAT tautology, due to Ehrlich and Holdren (yes that Holdren). Tidal pointed out the same before I got round to making the connection.

I’ll continue to argue, though, that it’s both a striking consequence and a useful one. Anyone talking about both returning growth to the economy and about sustainability needs to take this constraint into account. This includes President Obama. If you think about returning to sustained 3 % annual growth rates you are talking about some very massive changes in the consituents of the economy.

Pointing to the constraint does not guarantee that there is a way to achieve it. There are many reasons to expect negative growth in the largest economies in the future after all. We don’t even know if unsustainable growth can really be reconstituted. If we have really begun the long decline, it is probably a bit sooner than might have been necessary were it not for the great outburst of irresponsibility in the financial sector of late.


What the constraint does guarantee is that we will not be able to revive growth at full steam without a very substantial virtual tax implied by accounting for what has until now been treated as external, and shunted to later generations. We are no longer in a position to shunt things to later generations. We are the later generation that those awful people who were right about the environment warned our parents about.

I’m not claiming some secret key to answer all our problems. I’m suggesting only that those desperate to avoid challenging the growth paradigm have a very steep and narrow path ahead. I’m noticing that this includes our otherwise enormously admirable leader. I hope President Obama or someone around him has some secret recipe to make these ingredients work together, but I think instead that nobody has faced up to the constraints properly.

So I’m proposing we be as optimistic as possible, and also be sort of mathematically oriented. Proving that growing impact is unsustainable is easy. Detaching our institutions and traditions from growing wealth appears very difficult. But is it impossible? We can take the mathematician’s approach and assume a solution exists, and try to examine the properties that follow from the constraints we have set in search of a final contradiction.

So consider some of the responses to my previous article in this vein.

Let’s first tip our hats in the direction of the stuff that John Mashey wants us to take into account: the fact that whatever we do, energy is going to get more expensive. This surely makes many things more difficult, but I don’t see that it makes a sort of numerical growth in wealth more difficult. On the contrary, it would appear in some odd paradoxical way to help! We want more wealth per unit of energy and we will automatically get less energy per unit of wealth. Isn’t that the same thing, really? Well, no, not exactly, because it means all else equal that real wealth tends to decline, but suppose all esle is not equal. If there’s some other sort of low-impact wealth that compensates, the combination actually pulls in the right direction. I am scratching my head about this one, too, but not everything works the way intuition says it does.

The question, though, is what that other source of wealth might be.

Another interesting comment comes from Dave Gardner of Growthbusters :

I like your notion that perhaps we can all be delusionally happy if we are simply given more Monopoly play money and it has no connection to more resource depletion or environmental degradation! You may be onto something.

I think this takes it just a hair too far. I don’t think the currency can be entirely delusional, although one might argue that it is already play money in some circles.

(For the love of God, why doesn’t Microsoft just take its money home and shut down its production of worthless garbage so everyone can migrate to a sensible platform? What drives their intense drive to prevent us from having useful tools? It’s not because they are literally hungry, is it?)

No, the currency has to convey real advantages. Maybe very few people will fly, but the people with more of it will still be able to take luxury liners to fine hotels, eat the little bit of sushi that is left, and so on. The real question remains what is it that has been growing all along? The concept of aggregate wealth seems to me to evaporate the closer one looks at it. It does seem that the changes in the rules of the game might not have to be all that large.

Bart Verheggen offers a challenge from a different direction.

But in the current financial crisis, didn’t the fact that money is already to a great extent decoupled from material items contribute to the problem? Didn’t the (risky) dealing with money as hot air, without a link to a real product or service, play a role in the current financial crisis?

This came at me rather unexpectedly, but I have to admit there is a point. The fact is that our system failed because of its abstraction from real processes. This perhaps ties in with the Monopoly Money issue that Dave raised. But I am not arguing for devaluing real processes. I am arguing for increasing their valuation. Food and energy in particular will become relatively more expensive in proportion to finished products; indeed this is what is likely to happen anyway.

Another problem is raised by my intervening posting about the vast wealth of the internet and the complete lack of sensible models to pay for it. “Too cheap to meter” turns out to be a problem. We used to believe that our material pursuits would be replaced by artistic and intellectual ones. In a sense that is entirely true for me. I hardly care at all where or how I live as long as I have a decent internet connection and a few good friends. (I’m an extreme case being childless, but the principle holds to a lesser extent for families too.) But as a producer as well as a consumer of exactly the sort of intellectual and artistic content that was supposed to be the salvation of the future dematerialized civilization, I find myself in a strange economy, one where the currency of attention can’t easily be exchanged for, say, shoes. Admittedly I could get into endless pissing matches with famous denialists, but after all, I do have some standards. I’d rather just work at Wal-Mart.

Maybe I can follow in The New Yorker’s footprints and sell Tobis’s Tautology T-shirts. (I have seen someone selling T-shirts with the slogan “There is No Planet B” which I wish I had thought of.)

Maybe this is teh whole story, though: we will just need to adjust to a radical rearrangement of pricing structures. But this brings me back to my basic confusion about economics. As the “basket” of goods we choose changes, the “value” of the “currency” in which we measure our “wealth” becomes less determinate. So what, exactly, is it that is supposed to be growing? Can we keep that something growing while decreasing absolute impact?

But what is the something? Bart ponders along these lines:

Could a redefinition of the growth parameter (GDP) help? More car accidents raises GDP, but decreases the average wellbeing. If impacts, also those that are distant in time or place, are included within the growth parameter, then the picture of growth would quickly look very different. The genuine progress indicator (GPI) and other initiatives along similar lines could perhaps serve as an example.

To which the Texas answer is a squint and a “y’all aren’t from ’round these parts, are ya?” Around here we spend money, not GDP.

I think it’s the individual and institutional incentives that matter, not the collective metrics. But we do have to play around with them and stop letting them have their way with us.

It’s interesting. So far my answer to the question framed by the tautology is “maybe”. I haven’t convinced myself that we absolutely need to let go of something very much like growth. I freely admit to being uncomfortable with macroeconomics. Unfortunately, it’s not just my own grasp of the subject that I find wanting, though. I doubt everyone else’s as well. That said, I think the present company will be able to recognize cogent analysis and we will all appreciate any further consideration of these ideas.


Image from the T-Shirt sales at the New Yorker. Please do buy something from them and keep their lawyers at bay so I can keep the cartoon up.


Cassandritis in the Financial Sector

Hats off to Gil Friend for spotting the New York Times’ enthusiasm for Wall Street deregulation a decade ago.

Proponents:

”Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. ”This historic legislation will better enable American companies to compete in the new economy.”


”The world changes, and we have to change with it,” said Senator Phil Gramm of Texas, who wrote the law that will bear his name along with the two other main Republican sponsors, Representative Jim Leach of Iowa and Representative Thomas J. Bliley Jr. of Virginia. ”We have a new century coming, and we have an opportunity to dominate that century the same way we dominated this century. Glass-Steagall, in the midst of the Great Depression, came at a time when the thinking was that the government was the answer. In this era of economic prosperity, we have decided that freedom is the answer.”

In the House debate, Mr. Leach said, ”This is a historic day. The landscape for delivery of financial services will now surely shift.”

The Cassandras:

The opponents of the measure gloomily predicted that by unshackling banks and enabling them to move more freely into new kinds of financial activities, the new law could lead to an economic crisis down the road when the marketplace is no longer growing briskly.

”I think we will look back in 10 years’ time and say we should not have done this but we did because we forgot the lessons of the past, and that that which is true in the 1930’s is true in 2010,” said Senator Byron L. Dorgan, Democrat of North Dakota. ”I wasn’t around during the 1930’s or the debate over Glass-Steagall. But I was here in the early 1980’s when it was decided to allow the expansion of savings and loans. We have now decided in the name of modernization to forget the lessons of the past, of safety and of soundness.”

Senator Paul Wellstone, Democrat of Minnesota, said that Congress had ”seemed determined to unlearn the lessons from our past mistakes.”

”Scores of banks failed in the Great Depression as a result of unsound banking practices, and their failure only deepened the crisis,” Mr. Wellstone said. ”Glass-Steagall was intended to protect our financial system by insulating commercial banking from other forms of risk. It was one of several stabilizers designed to keep a similar tragedy from recurring. Now Congress is about to repeal that economic stabilizer without putting any comparable safeguard in its place.”

The jovial rebuttal, of course, was that the worriers worry too much, and shouldn’t do so much standing in the way of progress:

Supporters of the legislation rejected those arguments. They responded that historians and economists have concluded that the Glass-Steagall Act was not the correct response to the banking crisis because it was the failure of the Federal Reserve in carrying out monetary policy, not speculation in the stock market, that caused the collapse of 11,000 banks. If anything, the supporters said, the new law will give financial companies the ability to diversify and therefore reduce their risks. The new law, they said, will also give regulators new tools to supervise shaky institutions.

”The concerns that we will have a meltdown like 1929 are dramatically overblown,” said Senator Bob Kerrey, Democrat of Nebraska.

Oh yes, and those gigantic super-powerful super-intelligent razor-clawed crabs bred for work at corporate construction sites? Don’t worry about them either. Almost all experts are agreed that they pose no threat.

 

The Problem and the Problem with the Problem


The prolific (and arguably indispensable) Joe Romm has a terrifying summary about global warming which appears to me to be pretty much on the mark.

Joe believes that people who understand the situation in this way should stick together. Given the scope of the problem, and the vast difference between the perspectives of those few who understand it and those many who don’t, you’d think we ought to stick together through thick and thin.

Matt Yglesias makes a similar point:

Where he goes wrong is that he seems to see this primarily as a political calamity in terms of the administration’s standing both domestically and in the eyes of international participants at the coming Copenhagen conference. That’s all true enough, but I think it’s important for people not to write about this issue without mentioning that failure to start reducing carbon emissions in the very near term is a substantive human and ecological catastrophe. Absent emissions reductions, the globe will continue to warm. That will, year after year, keep altering weather patterns around the world. A world inhabited by six billion people based on patterns of settlement established under existing climactic patterns. Climate change means drought and famine, flood and forest fire, all in new and unprepared places. People will die.

Well, people will die anyway, but let’s not split hairs. This is starting to look like the whole world is a complete idiot and will march over the cliff in some sort of hypnotic trance.

The problem with the problem is that people don’t actually believe it. They think we are, not to put too fine a point on it, making shit up. Why they think that is obvious enough. Some people are trying very hard to confuse matters. And being very effective at it.

The question that immediately follows, the motivating question of “In It” is “so what should we do about it“? And here we have a problem: the confusers have managed to convince the public that people who express deep concern do so for personal gain. In my own case, it has been nothing of the sort, at least insofar as personal gain reduces to wealth.

I very much appreciate and enjoy any encouragement I get form my readers. It has been one of the nicest aspects of the past couple of years. Indeed, I would like to be able to get a tiny amount of personal gain from doing what I do here. While not everybody could do the work I currently do for pay, I’d have to admit I’m replaceable. I could make a much better contribution given the time.

But that leads to an interesting problem of credibility. Lawrence Lessig, at a very impressive talk at SXSW, argued that a big problem with government nowadays is the corrupting power of money which mostly flows through issue advocacy. Once you associate yourself with a position for pay, your opinion, your arguments, even your soundest unassailable proofs, automatically lose value in the discourse.

Unfortunately we have entered a period when the truth itself “has a liberal bias”. Things are really serious.

Does that mean that one has to toe the line for fear of injuring one’s allies? Many people seem to think so.

But I’d like CSS on the table, and nuclear, and also reduced growth and economic decline. All of these options are anathema to the engine of green politics. And as for the cap and trade vs carbon tax thing, I’m just completely dazed and confused. I’d like to take it up as a neutral party.

I am no longer interested in debating the “Ravens” of the world on their terms. They are a problem but I find it odd that people persist in engaging them as if they had any intention of examining their beliefs. But we have to find some way to make it visible to the world that they are not actually the real thing.

To do that we need credibility, and to gain credibility we have to avoid lining up behind ideas that make little sense.

For instance? I’m glad you asked.

I am interested in debating the proposition that “green jobs” will “revive the economy” in the short run. It’s considered heresy to question this in some circles, but there’s a simple argument that in traditional economic terms it just can’t be true, else it would have happened already.

Yes, it will cost. The longer we wait the more it will cost. We have to get started regardless of the cost; there is no limit to the cost of never shifting to sutainability. No limit short of the end of life.

Does it really help matters to pretend that there is some conspiracy behind the use of coal instead of wind and solar? How shall we think about these things if nobody is allowed to say anything other than the most cheerful nonsense on their side?

Well, it’s not disallowed, it just doesn’t have much presence in the “marketplace of ideas”. Scientists are funded to talk to scientists. Anti-scientists are funded to talk to the public. Even the political parties aligned with the science scowl furiously at any effort to publicly think things through.

So how to fund a voice that is perceived as intelligent and independent, that engages with politics while representing science? The traditional structures of science and of politics and of journalism all fail us: not just me, who really would like to do that sort work if it existed somehow, but all of us, who need to think our way out of our quandary collectively.

Like Lyndon Johnson, we should recall the words of the prophet Isaiah: “Come, let us reason together.” That doesn’t mean ignoring the seriousness of our predicament, but on the other hand it doesn’t mean marching in lockstep either.

We have to butt heads or we won’t get anywhere. There’s my paraphrase of Isaiah 1:18.


I am going to try to do better with image credits, but I can’t track down the page the excellent drought photo was on. It is from a government site in New South Wales, Oz.
The grackle is available at Stuffed Ark .



Is Money Itself a Ponzi Scheme?

Here’s an alternative view of economics that I heard in a talk, written up by Douglas Rushkoff. The most interesting point to me is this one:

Local currencies favored local transactions, and worked against the interests of large corporations working from far away. In order to secure their own position as well as that of their chartered monopolies, monarchs began to make local currencies illegal, and force locals to instead use “coin of the realm.” These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest.

What does that do to an economy? It bankrupts it. Think of it this way: A business borrows 1000 dollars from the bank to get started. In ten years, say, it is supposed to pay back 2000 to the bank. Where does the other 1000 come from? Some other business that has borrowed 1000 from the bank. For one business to pay back what it owes, another must go bankrupt. That, or borrow yet another 1000, and so on.

An economy based on an interest-bearing centralized currency must grow to survive, and this means extracting more, producing more and consuming more. Interest-bearing currency favors the redistribution of wealth from the periphery (the people) to the center (the corporations and their owners). Just sitting on money—capital—is the most assured way of increasing wealth. By the very mechanics of the system, the rich get richer on an absolute and relative basis.

The biggest wealth generator of all was banking itself. By lending money at interest to people and businesses who had no other way to conduct transactions or make investments, banks put themselves at the center of the extraction equation. The longer the economy survived, the more money would have to be borrowed, and the more interest earned by the bank.

Does that make sense? Opinions please? Counterarguments?

Although Rushkoff has a substantial Google footprint I was unable to turn up a rebuttal. (This may be symptomatic of how thoroughly we talk past each other these days.)

To me it seemed compelling at first blush, but when I tried to convey it to others I was not altogether convincing. On further consideration, I conclude that it MUST be an oversimplification, because a Ponzi scheme can’t work for 400 years, and after all, the system DID succeed in increasing wealth vastly since medieval times.

But there’s a real question here for those of us (like me and Rushkoff) interested in economics, skeptical of it, and not especially well-versed. Is growth built in? Because if it is, we have a problem. Given that wealth has environmental impact, given that there is no particular constraint that causes environmental impact per unit wealth to fall as fast as aggregate wealth increases, we eventually hit a brick wall.

There is certainly a case to be made that eventually is now, and accordingly Obama’s efforts to reboot the economy are doomed to failure. But that’s not what I am trying to address here.

The question I would like to raise is whether unsustainability is built in; whether as Rushkoff suggests we are institutionally incapable of a steady state economy, or whether it might be workable.

The alternative, which I find very intriguing, is the idea that somehow we constrain environmental impact per unit wealth to fall slightly faster than wealth increases. This would be the least disruptive path to sustainability if it were possible. Admittedly this is a vague idea. I got the germ of it from Robert Rohde on a very interesting thread on the globalchange list a couple of years back, when he just calmly asserted that it could naturally emerge that way. Now with all respect to Robert I thought that was a bit, hmm, overoptimistic. But maybe there is a way to make something like that work with some careful design effort.

Maybe we can have a steady state impact constraint atop a nominally growth-based economy by design.

I don’t know of anyone (besides myself) trying to envision how such a thing might be constructed. The concept that sustainability could be constructed as a layer on top of an unsustainable system came to me almost two years ago under the influence of a (mostly very technical) Google talk, but I haven’t made much (OK, any) progress with it. I find it hard to communicate these sorts of ideas to the sorts of people who might be able to get a grip on the details. Maybe it’s just not feasible, but I’d like someone who knows why to acknowledge what I am saying and then reply with an explanation of why it couldn’t be practical.

I have a couple of grounds for skepticism myself.

It seems to me that eventually production is actually negatively correlated to wealth. First of all there is the lawnmower problem.

Then there is the fact that I, for one, measure my own wealth in social and artistic and intellectual experiences. This decreases my net impact but doesn’t really promote growth at all. If the society moves to an economic metric that values low impact wealth, that means information will be monetized (DRM and such). Recent trends are not indicative that this will work. What’s more, there are strong reasons to believe that they shouldn’t. In other words, the attention economy doesn’t map very well onto traditional economics.

Most economists treat these as aberrations, but both of them are core features of my experience, which may have something to do with why I regard economics with considerable skepticism. But maybe these things can be worked around too.

Economists Trying to Control the Discourse

You would think the situation might call for a revisiting of conventional notions, a moment of introspection, an admission that perhaps past advice may have been not entirely of the finest caliber.

You might think so but, well, no.

David Leonhardt, in an unusually early preview of this week’s New York Times Magazine:

But while Washington has been preoccupied with stimulus and bailouts, another, equally important issue has received far less attention — and the resolution of it is far more uncertain. What will happen once the paddles have been applied and the economy’s heart starts beating again? How should the new American economy be remade? Above all, how fast will it grow?

That last question may sound abstract, even technical, compared with the current crisis. Yet the consequences of a country’s growth rate are not abstract at all. Slow growth makes almost all problems worse. Fast growth helps solve them. As Paul Romer, an economist at Stanford University, has said, the choices that determine a country’s growth rate “dwarf all other economic-policy concerns.”

(Note, the links pasted through from the Times, which continues to have a completely idiotic policy to automatically link irrelevant articles, but that’s a minor gripe compared to this one. Normally I just excise them but I’m too peeved at the moment to bother.)

I admit I haven’t screwed up the courage to read beyond that point as yet. I’m sorry but it appears that I am too feebleminded to be able to understand the point on which the whole lengthy article expands.

Will someone, please, very slowly and patiently, explain to me what it is that is should be growing forever, how it is possible that it can do that (when all other growth processes in nature eventually terminate), and why we need it to do that? Please also explain why that should dwarf all other “economic-policy” concerns, like, say, sustaining a viable planet. I and the other seven billion of us would be most appreciative. Thanks in advance.

Update: Reading on:

For centuries, people have worried that economic growth had limits — that the only way for one group to prosper was at the expense of another. The pessimists, from Malthus and the Luddites and on, have been proved wrong again and again. Growth is not finite.

Which raises another request for assistance. Can someone provide such a “proof”, please? Perhaps that word means something different to an economist.

The rest of the article is not too offensive though it seems a bit oblivious to, well, a lot of things. To be fair I did like this bit though:

He then told a story that John F. Kennedy liked to tell, about an early-20th-century French marshal named Hubert Lyautey. “The guy says to his gardener, ‘Could you plant a tree?’ ” Summers said. “The gardener says, ‘Come on, it’s going to take 50 years before you see anything out of that tree.’ The guy says, ‘It’s going to take 50 years? Really? Then plant it this morning.’ ”

The Lawnmower Problem

OK, never mind, for the moment, if lawns are a good idea. Let’s consider lawnmowers.

If you have a typical American house, you have a typical lawn in front of it, a lawn that is in need of occasional trimming. Unless you contract out for lawn services, you almost certainly own a lawnmower too. Most likely it has a cheesy, loud, polluting little engine.
You only use this for an hour every other week, or 1/336 of the time. OK, you don’t want people mowing lawns at night, so say 1/168 of the available daylight time. So you and your 167 nearest neighbors own 168 times too many lawnmowers. If you could coordinate your lawnmowing, you would need to spend 1/168 as much on a lawnmower. Similar calculations apply to every other household tool you own that you don’t use intensively in your work or your principal hobbies.
OK, it’s a slight exaggeration for various reasons, but there is no reason 50 people couldn’t share a really good lawnmower except for logistics. Less intensive tool sharing is already happening informally in more civilized neighborhoods on local mailing lists. (“Has anybody got one of those really tall pruning shears?”) Sure enough, people are trying to build web tools to facilitate more effective sharing. ( H/T @timoreilly )
Though it strikes me as possibly overkill, and that perhaps a local mailing list would be more fun, this sort of thing may move the process of substituting relationship for stuff forward.
Now consider that this would reduce the demand for lawnmowers by 98% over the long term, and create a vast oversupply in the short run.
This is part of the trend to substitution of information for materials. Knowing where to borrow a lawnmower is actually better than owning a lawnmower: it saves you some storage. Substituting information for materials decreases impact on the environment; the impact from the manufacture of 49 lawnmowers in this case.
It will also greatly reduce employment in the manufacture of nasty little two- four-stroke engines. According to almost all economists and almost all politicians, this is a bad thing. Obama has as his first priority re-employing all the people who until recently were diligently employed creating, servicing and financing a huge housing glut. The public agrees. They are wrong.
Economists would argue in theory that if a web site or more reliance on mailing lists or even old fashioned community “bulletin boards” (corkboards and thumbtacks) can replace 98% of lawnmowers with a few pennies worth of information exchange, this amounts to creating value.
But it’s value that’s very hard to capture: the people putting up the web site will invest a few hundred hours of effort but not much else, and will probably get by on advertising revenues. The vast bulk of the return goes to the people who don’t have to get new lawnmowers. So in practice, wealth is moved from the money economy back to the informal economy.
GDP goes down. Employment goes down. Collective well-being goes up a little bit but individual well-being of people who make and market little two-^H^H^H^H four-stroke engines goes down. Crisis is declared.
Yet this is exactly the opposite of the behavior that got us into trouble in the first place: the replacement of community with commerce. Isn’t this the sort of “decline” we should be encouraging?
Of course it is no pleasure to lose your main income stream, especially when your savings are crumbling too. The response to this shouldn’t be to “revive” the economy, especially the manufacturing sector which has obviously overproduced. The response should be to make it less of threat to be unemployed: public health care, decent housing and food standards provided for everybody. Losing income should not be an existential threat. Calm, underemployed people can be a huge source for creativity and restoration of the social fabric. Desperate underfed people can’t.
The answer to past overproduction can’t be to bring back the good old days of overproduction.
Don’t work too hard to keep your job. Apply your extra efforts to find out how you can contribute to the informal economy.
Don’t replace your lawnmower. Meet your neighbors.
Relaxation is progress. Take advantage of the Great Unwinding, and unwind.

Via @timoreilly, here’s a discussion of the very topic at hand.