Tag Archives: economic growth

July 2015 in Review

I’m experimenting with my +3/-3 rating system again this month, just to convey the idea that not all stories are equal in importance. The result is that July was a pretty negative month! Whether that reflects more the state of the world or the state of my mind, or some combination, you can decide.

Negative stories (-21):

  • In The Dead Hand, I learned that the risk of nuclear annihilation in the 1980s was greater than I thought, and the true story of Soviet biological weapons production was much worse than I thought. (-3)
  • Elon Musk and Stephen Hawking, among others, are concerned about a real-life Terminator scenario. (-2)
  • I playfully pointed out that the Pope’s encyclical contains some themes that sound like the more lucid paragraphs in the Unabomber Manifesto, namely that the amoral pursuit of technology has improved our level of material comfort and physical health while devastating the natural world, creating new risks, and leaving us feeling empty somehow. (-1)
  • Bumblebees are getting squeezed by climate change. (-1)
  • The Cold War seems to be rearing its ugly head. (-2)
  • There may be a “global renaissance of coal”. (-3)
  • Joel Kotkin and other anti-urban voices like him want to make sure you don’t have the choice of living in a walkable community. (-2)
  • I think Obama may be remembered as an effective, conservative president, in the dictionary sense of playing it safe and avoiding major mistakes. Navigating the financial crisis, achieving some financial and health care reforms, and defusing several wars and conflicts are probably his greatest achievements. However, if a major war or financial crisis erupts in the near future that can be traced back to decisions he made, his legacy will suffer whether it is fair or not. (-0)
  • We can think of natural capital as a battery that took a long time to charge and has now been discharged almost instantly. (-3)
  • James Hansen is warning of much faster and greater sea level rise than current mainstream expectations. (-3)
  • Lloyd’s of London has spun a scenario of how a food crisis could play out. (-1)

Positive stories (+7):

Canada’s Eco-Fiscal Commission

Canada has something called an eco-fiscal commission, and it has a blog.

Technological change has transformed the quality of our lives. It has removed terrible diseases that maimed, crippled, and killed — plague, tuberculosis, cholera, dysentery, smallpox, and leprosy, to mention only the most common. In 1900, death from botulism and ptomaine poisoning from contaminated food was common. Chemical additives virtually eliminated these killers and allow us to live long enough to worry about the long run cancer causing effects of some of these additives. Now they are being replaced by safer preservatives.

Technological change has also transformed how we make both existing and new commodities. Most new technologies useless of all inputs per unit of output than do the older technologies that they replace thus moving us towards an increasingly economical use of the world’s resources. Furthermore, many newer technologies are much less polluting than many older technologies.

In summary, economic growth driven by new technologies not only increases our incomes; it transforms our lives through the invention of new, hitherto undreamed of products that are made in new, hitherto undreamed of and more economical ways. We can indeed be thankful that no anti-growth advocate persuaded governments in 1950, let alone in 1900, to stop all growth on the grounds that resources were limited and that we did not need more of what we already had too much of, thereby denying us of all the products and processes just mentioned and the new resource saving and less polluting production methods ̶ and others too many to list here.

This thinking is logical on its face. But of course, the logical flaw is when it is not paired with the idea that the absolute physical footprint can’t grow forever. Put another way, you can’t just keep producing each unit of output more efficiently, and producing ever more output, unless the growth in efficiency is faster than the growth in output. It could theoretically be done, but we’re not close to turning that corner.

June 2015 in Review

Negative stories:

Positive stories:

climate change and the economy

Here’s another modeling study in Ecological Economics that looks at the effects of climate change on the global economy.

A demand-driven growth model involving capital accumulation and the dynamics of greenhouse gas (GHG) concentration is set up to examine macroeconomic issues raised by global warming, e.g. effects on output and employment of rising levels of GHG; offsets by mitigation; relationships among energy use and labor productivity, income distribution, and growth; the economic significance of the Jevons and other paradoxes; sustainable consumption and possible reductions in employment; and sources of instability and cyclicality implicit in the two-dimensional dynamical system. The emphasis is on the combination of biophysical limits and Post-Keynesian growth theory and the qualitative patterns of system adjustment and the dynamics that emerge.

Collapse

A 2012 article in Scientific American quotes Dennis Meadows and Jorgen Randers (it’s a little unclear which is speaking when) on how they think a collapse will play out:

For the coming few decades, Randers predicts, life on Earth will carry on more or less as before. Wealthy economies will continue to grow, albeit more slowly as investment will need to be diverted to deal with resource constraints and environmental problems, which thereby will leave less capital for creating goods for consumption. Food production will improve: increased carbon dioxide in the atmosphere will cause plants to grow faster, and warming will open up new areas such as Siberia to cultivation. Population will increase, albeit slowly, to a maximum of about eight billion near 2040. Eventually, however, floods and desertification will start reducing farmland and therefore the availability of grain. Despite humanity’s efforts to ameliorate climate change, Randers predicts that its effects will become devastating sometime after mid-century, when global warming will reinforce itself by, for instance, igniting fires that turn forests into net emitters rather than absorbers of carbon. “Very likely, we will have war long before we get there,” Randers adds grimly. He expects that mass migration from lands rendered unlivable will lead to localized armed conflicts…

Meadows holds that collapse is now all but inevitable, but that its actual form will be too complex for any model to predict. “Collapse will not be driven by a single, identifiable cause simultaneously acting in all countries,” he observes. “It will come through a self-reinforcing complex of issues”—including climate change, resource constraints and socioeconomic inequality. When economies slow down, Meadows explains, fewer products are created relative to demand, and “when the rich can’t get more by producing real wealth they start to use their power to take from lower segments.” As scarcities mount and inequality increases, revolutions and socioeconomic movements like the Arab Spring or Occupy Wall Street will become more widespread—as will their repression.

DICE

This article in Ecological Economics reminded me of the DICE model from William Nordhaus at Yale.

In integrated assessment models (IAMs) economic activity leads to global warming, which causes future economic costs. However, typical IAMs do not explicitly represent the role of natural capital. In this paper, the DICE model by Nordhaus (2008) is expanded with a natural capital variable that is affected both by climate change and by depletive effects of economic activity. Due to a synergy between the two effects, the optimal policy of the expanded model features more and earlier abatement of CO2 emissions than DICE. Interestingly, the policy implications are different from what follows if one tries to capture the depletive effects on natural capital by simply reducing factor productivity growth in DICE. Acknowledging considerable uncertainty, simulations show that climate- and savings rate policies from the expanded model are more robust in the long term than policies that do not consider non-climatic depletion effects on natural capital.

The DICE model and a variety of papers related to it are freely available here.

Mckinsey

McKinsey lists “four powerful forces [that] are disrupting the global economy”.

  • “shift of economic activity to emerging-market cities
  • “acceleration of technological change. While technology has always been transformative, its impact is now ubiquitous, with digital and mobile technologies being adopted at an unprecedented rate. It took more than 50 years after the telephone was invented for half of American homes to have one, but only 20 years for cellphones to spread from less than 3% of the world’s population to more than two-thirds. Facebook had six million users in 2006; today, it has 1.4 billion… The mobile Internet offers the promise of economic progress for billions of emerging-economy citizens at a speed that would otherwise be unimaginable. And it gives entrepreneurial upstarts a greater chance of competing with established firms. But technological change also carries risks, especially for workers who lose their jobs to automation or lack the skills to work in higher-tech fields.
  • demographics – the possibility that world population could plateau or actually start to fall
  • globalization

There are a few more things out there that could disrupt the economy for better or worse – renewable energy? biotechnology? climate change? risks to food and water supplies? ocean collapse? nuclear or biological war?

May 2015 in Review

Negative stories:

  • MIT says there is a critical long term decline in U.S. research and development spending, while spending is increasing in many other parts of the world.
  • Lake Mead, water supply for Las Vegas and several other major western U.S. cities, is continuing to dry up. The normal snowpack in Washington State is almost completely absent, while much of Oregon has declared a state of emergency. As the drought grinds on, recycled water (sometimes derided as “toilet to tap”) is becoming more common in Calfornia. This is not bad in itself – on the contrary it is an example of technological adaptation and closing the loop. It does have a cost in money and energy though, which are resources that are then not available for other things like education or infrastructure or whatever people need. In other words, drought makes us all a little bit poorer.
  • We’ve hit 400 ppm carbon dioxide in the atmosphere, not just some places sometimes but pretty much everywhere, all the time.
  • There may be a “global shortage of aggregate demand“, and most countries are not dealing with it well. In many developed countries, increases in average longevity could lead to a trend of long-term deflation. This could eventually happen in almost all countries.
  • Climate change is going to make extreme weather more frequent and more damaging in U.S. cities. The 2015 El Nino could break records.
  • There just isn’t a lot of positivity or hope for better passenger rail service in the U.S.
  • Human chemical use to combat diseases, bugs, and weeds is causing the diseases, bugs and weeds to evolve fast.
  • Unfortunately there is no foolproof formula to make education work.

Positive stories:

  • Less leisure time could mean less sustainable outcomes, because people just have less time to think and act on their good intentions. I’m putting this in the positive column because although people in the U.S. and many other countries still work long hours, the trend so far is less work and more wealth for human population as a whole over very long periods of time. Obviously the transition is not smooth or painless for all workers all of the time.
  • I found a nice example of meta-analysis, which aggregates findings of a large number of scientific and not-so-scientific studies in a useful form, in this case in the urban planning field.
  • May is time to pull on the urban gardening gloves.
  • Melbourne’s climate change adaptation plan focuses on green open space and urban tree canopy.
  • Painless vaccines may be on the way.
  • The rhetoric on renewable energy is really changing as it starts to seriously challenge fossil fuels on economic grounds. Following the Fukushima disaster, when all Japan’s nuclear reactors were shut down, the gap was made up largely with liquid natural gas and with almost no disruption of consumer service. But renewables also grew explosively. Some are suggesting Saudi Arabia is supporting lower oil prices in part to stay competitive with renewables. Wind and solar capacity are growing quickly in many parts of the world. Lester Brown says the tide has turned and renewables are now unstoppable.
  • Commercial autonomous trucks are here.
  • The UK may have hit “peak car“.
  • Seattle is allowing developers to provide car share memberships and transit passes in lieu of parking spaces.

Paul Romer and “mathiness”

Paul Romer has attacked a number of fellow economists for relying on what he calls “mathiness” rather than mathematical theory. He believes the study of economic growth and its practical applications have suffered because of this.

Academic politics, like any other type of politics, is better served by words that are evocative and ambiguous, but if an argument is transparently political, economists interested in science will simply ignore it. The style that I am calling mathiness lets academic politics masquerade as science. Like mathematical theory, mathiness uses a mixture of words and symbols, but instead of making tight links, it leaves ample room for slippage between statements in natural versus formal language and between statements with theoretical as opposed to empirical content.

Solow’s (1956) mathematical theory of growth mapped the word “capital” onto a variable in his mathematical equations, and onto both data from national income accounts and objects like machines or structures that someone could observe directly. The tight connection between the word and the equations gave the word a precise meaning that facilitated equally tight connections between theoretical and empirical claims. Gary Becker’s (1962) mathematical theory of wages gave the words “human capital” the same precision and established the same two types of tight connection—between words and math and between theory and evidence. In this case as well, the relevant evidence ranged from aggregate data to formal microeconomic data to direct observation…

The market for mathematical theory can survive a few lemon articles filled with mathiness. Readers will put a small discount on any article with mathematical symbols, but will still find it worth their while to work through and verify that the formal arguments are correct, that the connection between the symbols and the words is tight, and that the theoretical concepts have implications for measurement and observation. But after readers have been disappointed too often by mathiness that wastes their time, they will stop taking seriously any paper that contains mathematical symbols. In response, authors will stop doing the hard work that it takes to supply real mathematical theory. If no one is putting in the work to distinguish between mathiness and mathematical theory, why not cut a few corners and take advantage of the slippage that mathiness allows? The market for mathematical theory will collapse. Only mathiness will be left. It will be worth little, but cheap to produce, so it might survive as entertainment.