PhD economist to be, Jerry Benzl, nails my Malthusian ass to the wall

BT: Mon 4/24/2006 3:57 AM
I've been giving some serious thought to our Easter discussion and to economics in general. Deciding not to let you off quite so easy, I've included an article I found in the current issue of Adbusters Magazine that I think you should read. It's basically an opinion survey of a few top thinkers in the field. They were asked, "How can economists justify their refusal to address the environmental problems they are complicit in? How can they simply opt out of the discussion and focus on their narrow microeconomic games?" My hope is that in addition to finding the article interesting reading, it inspires you to consider the fundamentally flawed nature of our current economic paradigm. A system that encourages perpetual growth on a planet with finite resources is insane. I believe it probably made more sense some time ago when there was always another forest to chop down, more neighbors to exploit, more land to build on, and more oil to suck out of the ground. It has since become outdated and needs replacing by a model that respects limits to growth, embraces sustainability, factors in the "true cost economics" of environmental and social degradation, and measures progress in an entirely new way. That's where you come in. As a future member of the group of people paid to think in this country, what does Jerry Benzl see this new model looking like? (Besides some of the more obvious traits mentioned above.) Will personal gain at the expense of another always be the norm or will the older culture practice of group cooperation see a revival? Certainly six billion people all fighting for scraps isn't the best way to proceed. What's going to happen when we can no longer just apply the market and grow our way out of a problem? Any thoughts you might have (and decide to type out) would be a great feature for BTF. However, if you decide to be like the neoclassical students not so positively portrayed in the Adbusters article, maybe you know someone who can see the bigger picture.

JB: Mon 4/24/2006 12:09 PM
Can markets work to reduce pollution?

BT: Tue 4/25/2006 2:26 PM
Sure, markets can work to reduce pollution-- if there is a profit motive and a system set up so that someone gets paid. However, I'm not talking about some company changing their corporate colors to green, or even throwing a few dollars at a river cleanup. What I'm interested in, and what I'm trying to get others to think about is what our current system's replacement is going to look like (and yes, it will need replacing before every last resource on this planet has been gobbled up). It was this entirely new system I had hoped you'd take a few minutes to think about.

JB: Tue 4/25/2006 10:01 PM
I'm not sure I agree with your assessment that an entirely new system needs to be created. The truth is, the current system itself, even our own being, is a product of gradual changes --evolution if you will. Adaptations do take place, but rarely do you observe an entirely new species emerging out of the blue. Markets of some type have always existed --as far as societies are concerned-- for organizing resources. Even so called communal societies were mostly products of local, decentralized organizations (people still paid the price of goods, even if they choose to operate collectively). And what is a market if not that? Frankly, given the reality of a limit to resources, I actually don't see a mechanism antithetical to the market... one might be able to think about a Star Trek universe in which material satisfaction is trivial, but otherwise, how does one decide who gets what, when?

Think of this, who should decide how much you need to work? What your job should be? What your reward should be? Need you be coerced into working under a system of slavery? If you wish to involve individuals on a voluntary basis, you are going to have to accept that people will work to further their own (not necessarily selfish) aims. Voluntary by definition requires that people make the choice to participate. Now, of course, if people's preferences are purely altruistic (if that even makes sense), then voluntary participation of an entirely cooperative and communal kind could work. I'm not about to claim that human nature is one way or another, but as long as preferences are heterogeneous, then cooperation might be met with certain resistance. You can't expect everyone to agree on an allocation of goods every time. The market at least forces us to pay the price of producing goods for the most part. When market forces don't work --that means that the real cost is not the price paid, then one solution is to involve the government. Now the government --having the power to coerce-- can be used to balance the true cost with the actual cost. I think you can find plenty of examples of cases where a society does just that. Cigarette taxes for one example.

That is where I find the "new system" arising from. Simply put, I think our future response to scarce resources will be an adaptation to the current market system. So I don't claim the market system is perfect; I just maintain that it is flexible enough to adapt to future needs. And notice this discussion makes no reference to the idea of innovation. What about your worst case?

The worst case:
Malthusian views --like yours-- are not new. Societies have dealt with limited resources in the past. If Malthus' logic comes true, I suppose there will necessarily be expensive constraints on reproduction. One way to mitigate too many mouths to feed is to not have too many mouths. Why can't a market help regulate that? If raising children turns out to be so costly, some might choose to have fewer children. But short of a central authority forcing individuals to make that choice, one can only speculate on the choices people will tend to make in that situation. And that does not rule out people collectively deciding on such an authority to do just that. Many argue this is the origin of the state --that I, the state exist as a means of collective action.

As a final word, if you are not going to have a system of voluntary exchange, it seems you will instead have a system that seeks to control the behavior of individuals. But it seems silly to think of a system that seeks to control every aspect of behavior. Thus, it is a question of how much to leave to a market system, and how much to try and force people into behaving a certain way? What do you think?

BT: Thu 4/27/2006 3:02 AM
The fundamental problem with the current economic paradigm is that it treats land, air, water and other things needed to support life as various forms of capitol. Theses things are therefore viewed (by the system) as expendable and infinitely available. Worst of all, because in this model natural resources can be substituted for, their exhaustion is an event and not a catastrophe. Whatever adaptations to the current system occur, they must include the adoption of "true cost economics." You mentioned the government's role in reducing the discrepancy between "true cost" and "actual cost." Short of assigning it a numerical value, the destruction of the biosphere has to be factored in somewhere. This is hardly a new idea and has been discussed at length. Taking this idea one step further, one might assert that any system where human population and consumption are not tied directly to the ecosystem's capacity to support its inhabitants without detrimental effects is, by definition, suicidal. Falling aquifer levels, collapsing fish stocks, reduced soil productivity, and changing climate are evidence that our economy, in its current form, will consume the planet if left unchecked.

This brings me to growth-- specifically, growth without limits. Kenneth Boulding said that, "Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist." Capitalism should be modified so that it is less focused on growth. For example, what if desirable economic outcomes were determined with ethical, ecological, or even religious concerns in mind?

You mention societies having "dealt" with limited resources in the past. Many anthropologists have argued that exhaustion of resources has played a part in the collapse of almost every major civilization in history. Whether Mayan or Sumerian, in each case, poor management of natural resources undermined ecological foundations enough to bring about a terminal decline. If that's what you mean by "dealt with," then I hope we can do better.

A market can help put the reins on population growth, but this brings up yet another problem with neoclassical economics. The "everyman" the system is based on is a misrepresentation of human nature. Individuals and their actions are not guided by perfect rationality. Population growth is often most explosive in the poorest communities-- the places least fit to feed more mouths. Why? I have no doubt that religion as well as a whole host of other factors, not based in logic, are affecting people's "choice" to have children.

For obvious reasons, I don't think a system that seeks to control behavior through force is the answer to our problem. I tend to have confidence enough in people to believe that when equipped with the right information, the reality of resource scarcity for example, they will choose to act collectively in response. Obstacles to this include cognitive dissonance, denial, and the infinite distractions and hurdles to mental clarity that a capitalist society breeds.

I agree that markets, in some form, will be with us for the foreseeable future. If the market system does turn out to be flexible enough to adapt to an energy scarce future, may I suggest it look to Older Culture tribal communities for inspiration. Before the first city-states that would eventually lay the foundation of our modern society, there were tribal groups-- synonymous with what you've referred to as "collective societies." While trade between these groups was market based, distribution of resources within the group was based on the idea that everyone gets what they need. Thom Hartman writes in his book, The Last Hours of Ancient Sunlight, "In Older Cultures, the goal of the entire community is to bring every person in the community to the "enough point." Once that is reached and ensured, people are free to pursue their own personal interests and bliss." Security is their wealth, not goods or services. These cultures don't see more as being better.

It seems unlikely that a planet of six billion could operate in this way, especially when most of us have forgotten the value of security and are busy acquiring material possessions. However, breaking the population down into small locally based sustainable communities could provide an environment where this type of cooperative thinking could thrive. The communities would have to be small enough so that each member shared in the collective vision of what their community should be-- homogeneous preferences in other words. Many of these intentional communities have already been established. Moving in this direction may very well mitigate the collapse that modern capitalism, its ugly offspring globalism, and our highly centralized governments are setting us up for.

JB: Thu 4/27/2006 7:23 AM
So the issue I see emerging from what you say, seems to be falling in the category of "my preferences don't agree with your preferences." It's a timeless riddle no doubt, but let us be clear on what it is not. You are also doing a good job of mixing up normative and positive interpretations of economics --a common method of attack.

First of all, you make the underlying assumption that people ought to be happy with what they "need", however broadly defined. The economist really can't help you with that. True, many of our microeconomic models assume people prefer more of a good thing to less. But realize that this assumption is only that, a convenient assumption. We have plenty of those in our field, but most, if not all, are not essential. We have models and we do think about situations where that assumption is violated or modified. For example, labor economics has incorporated a value for time (i.e. leisure) into their models, and so is concerned with how people value something other than material goods. The point is, given preferences of individuals, the economist can create a model that predicts optimal behavior. Whether we observe that behavior is an empirical issue. But nowhere should you see economists dictating what people's preferences should be. That much is out of our science. If you believe people ought to want this or that, there are other channels to discuss and persuade.

Another issue you continuously bring up is this notion that growth is all about exponential growth with no bound. That is, of course, ludicrous. One of the central tenants of economic theory is precisely the opposite --that this is no free lunch. If economists really believed in endless consumption, then there would be little need to discuss the inconvenience of resource constraints. In fact, if you ever bother to actually study what we economists think, you'll find that optimization always takes place relative to resource constraints (often referred to as budget constraints, but the concept is more general than that). Even our growth theories --the bane of your existence --take heed to the inherent limit of certain resources. (I'm not sure what economists you have been talking to, but I know not one member of UCI's faculty that claims we will or ought to grow continuously forever and ever in the face of finite resources). Actually, it turns out that in the Solow model, just accumulating kapital (i.e. investing in more stuff) does not induce growth. The best explanation for where real economic growth actually comes from is advances in technology. Unfortunately, how technology advances is not something we have a good understanding of.

In light of this, why don't you reformulate your concerns, so that we are not arguing about two different issues.

BT: Fri 4/28/2006 3:28 AM
In an attempt to focus this discussion so that we are "not arguing about two different issues" I assert that we are critiquing the market system in its current form here in the US. Additionally, we may consider the viability of alternative models. My goal is, and has been, to get economists such as your self to admit that the current economic paradigm is drastically flawed and needs to undergo a dramatic adaptation or be replaced entirely. I'd love to see the freshest minds in the field enthusiastically going about the business of designing that replacement. Although you admit the current system is flawed, you defend it indirectly by failing to suggest improvements. Incidentally, the longer you economists stay hiding behind your "science", refusing to get your hands dirty ("But no where should you see economists dictating what people's preferences should be."), the more of you will have your feet to the fire when things go to hell.

I will once again return to what you so scholarly referred to as the "bane" of my existence. I have no doubt that economists have developed sound models that factor in resource scarcity and downplay growth. However, capitalism, as it's applied here in the states, is focused on maintaining a "healthy economy" with a steady rate of growth (as measured by the GDP). Zero growth (steady-state) is a failure as far as capitalists are concerned.

You mention growth models that observe the resource limits of a finite planet. I challenge you to provide one example within modern capitalism where the "inherent limit of certain [natural] resources," has been addressed prior to their overexploitation. In other words, if the invisible hand that controls the commercial fishing industry really cared about the continued availability of fish, it wouldn't be depleting stocks to a point where recovery is in question.

As far as new technology and innovation producing growth, I couldn't agree more. However, because the implementation of new technologies has always been inextricably tied to increased energy use, this is a slippery slope. Even technologies designed to save resources end up using more.

Consider a new generation of energy efficient technology introduced in an Apollo style national program. In this scenario, the market system is retained and nothing is done to stabilize population. Because in the current market system where growth in sales is the desired outcome, efforts to market the new technologies will increase until improvements in energy efficiency are overwhelmed by the energy required to provide them. Even if population were stable, economic growth would increase energy use due to purchases of new (energy-saving) technology for our workplaces, homes, and cars. Prosperity cannot be maintained in a society based upon buying and selling without continuous growth in energy consumption, which, in a finite world, is impossible. I get frustrated when people say, "we'll all just drive hybrids!" This kind of delusional thinking only perpetuates the misconception that things can continue as they have been indefinitely. If technology does indeed produce growth (increase in the GDP/ rise in standard of living), then it does so via the use of ever increasing amounts of natural resources. This makes sense to anyone who believes you don't get something for nothing.

My description of intentional communities was not an attempt to dictate that people should be happy simply having what they "need". I was offering up a model where cooperation replaces competition as the key to organizing the distribution of resources.

JB: Fri 4/28/2006 7:16 AM
We economists can be no more complicit than you artists or you doctors or you politicians. Look to the politicians as the main culprit anyway. The problem is, you need to more or less force everyone to cooperate. You need the government for that --to the extent that government listens to economists (and a small elitist cabal that is), then you luck policy analysts in high places can potentially work to change people's actions. But for the rest of us, last time I checked, our vote did not count more than theirs. So the buck has been passed. If you must insist that we "get our hands dirty" I can only take that as a general call for support of your position (and applicable to everyone else as well). We're not The Wizard of Oz. I don't think it is appropriate to subject a discipline in the social sciences to a political position. Again, this is a case of "my preferences don't agree with your preferences" and that is meant to be resolved by the political system. Nowhere should you see economics dictating what people's preferences should be, any more than psychology should tell people what to think. That job is for preachers.

Let me address one of your examples. Fisheries are a curious choice for someone of your leaning. The interesting part about fisheries is that they don't really apply to the ideals of capitalism and markets. Adam Smith would be the first to agree. You see, who owns a fishery? Who owns a fish? Well, no one owns a fishery, and the only way to own a fish is to catch it yourself. The economist has known for a while that this sort of situation leads to depletion of resources very quickly. Look up "tragedy of the commons." The complexity of this particular problem is enhanced by the fact that not only does no one own a fishery, no single nation or government sets (or at the very least has the ability to enforce) rules on the sea. Thus you see Japanese fishing boats off the cost of Sweden, etc. The invisible hand actually doesn't apply to commercial fisheries for that reason. The ideas described by Adam Smith applied to markets of private goods (and lets not forget competition). The ocean is no more private than the electromagnetic spectrum. It looks to me that if you want to save the fisheries, you might have to invest in an international naval police.

So the Devil asks you this:
Many consider some resources to be approximately infinite. Solar and gravitational sources of energy have been argued to be in this category. Nuclear may also have potential to supply vast quantities of energy. What about the prospects of hydrogen? Are the innovators in these emerging technologies delusional? Perhaps they should stop working on those. Are they wasting their time (and our resources)? What does your crystal ball say about that?

BT: Tue 5/2/2006 4:22 AM
Any discussion of economic policy will eventually lead to energy concerns. Our global economy's stability depends on vast, uninterrupted inputs of cheap fossil fuel based energy. As I said before, any expansion of that economy will invariably require a corresponding increase in energy use to maintain. The world is watching as Asia, China in particular, attempts a rapid industrialization and diverts more and more of the world's available fuel supplies their way. Even with all the world's suppliers pumping full steam ahead, this process has sent crude supply lines into uncertain territory. There is absolutely no spare capacity anywhere in the system. A production shortfall of even a few hundred thousand barrels would send the price of oil (along with everything else) through the roof and plunge the world's economies into recession. Because we live in an unpredictable world of terrorist attacks and hurricanes: it's not a matter of if such a supply disruption will occur, it's when.

Such alarming information might lead one to ponder, "how did we get ourselves into this mess?" Thirty years ago, after the oil shocks of the early 70s, there was much talk of weaning ourselves off the oil teat. Some shouted about nuclear, others of solar, wind and hydrogen. Pretty much the same ideas our current president tries to pass of as new and novel. A few years later the last of the world's great fields came online, namely Europe's North Sea, and the bonanza continued. Talk of new technologies quieted to a whisper and people went back to making individual trips to the market for milk and cat food. That brings us up to today with that magical (inflation adjusted) $80/barrel point dangling just out of reach. Don't worry, we'll get there. You see, this time it's not a bunch of Arab princes jerking us around. This is the real thing.

So you ask, are those working on these "emerging technologies" wasting time and resources? My answer to you is yes. Had we made a concerted effort to implement them in the 70s… well that's a hybrid of a different color. It's widely accepted that it takes thirty years to replace an existing energy infrastructure with a new one-- maybe twenty if you do it Apollo style. Now it's too late and production shortfalls with be with us any day. It makes more sense if you look at some of the technologies in detail.

Nuclear is probably the only energy source that could have prevented serious economic and social turmoil if we'd built the necessary reactors some time ago. I believe there will yet be some effort to make a nuclear transition when people realize what the energy situation is and quickly put their "not in my backyard" tendencies to rest. Unfortunately, with the price of commodities like concrete and steel at all time highs, new plants are risky and expensive ventures. Unless the feds step in and put up the cash it could be too little too late.

The other problem with nuclear is one that applies to all "green" technologies as well. A fossil fuel based infrastructure is required to build and maintain them. Giant concrete cooling towers don't reproduce asexually --splitting apart to make more giant concrete cooling towers. You don't make new solar cells with existing solar cells, at least not yet. I know what you're thinking: the electric bulldozer! --The factory that runs on 100 percent electrical energy! Call me a pessimist but I think not. Our ability to harness the infinite energy of the sun, as well as that of nuclear fission, depends upon having the continued capacity to convert that energy to a useful form. The tools of conversion do not grow on trees.

Hydrogen is not a fuel when it's referred to in the context of a "hydrogen fuel cell." It is simply a means of storing electrical energy, a battery if you will-- and a rather poor one at that. Hydrogen corrodes pipelines, requires special (expensive) storage units, requires lots of energy to produce, and is highly volatile. You think the roads are dangerous now, imagine everyone driving around in their own private Hindenburg on wheels. "Hey mom, look at the pretty fireball!"

The proponents and innovators of these technologies aren't delusional, merely shortsighted. Our remaining fossil fuel resources will be wasted if they go toward any attempts to keep things humming along at their current speed. They would be better spent preparing the world for its inevitable low energy future. In other words, stop building hydrogen fuel cells and start building lifeboats.