Key words :
money and energy,
savings and money,
Energy and money
22 Dec, 2008 12:59 pm
Is energy merely another commodity among many in the modern industrial economy? Or is it the very basis of our financial and material life?
But the confusion of money and true wealth often leads to another confusion, namely, the idea that energy is just one among many commodities in modern civilization, the importance of which can be judged by its price. In truth, energy is the master resource without which nothing else gets done. Even if that energy comes from our own physical labor, it must still be harvested and digested in the form of food before we can use it. But in modern society, the amount of energy from human labor that goes into our economic output is so small that it doesn't even register on a graph of energy sources. Almost all the energy that goes into our products and services comes from elsewhere, fossil fuels, hydroelectric, nuclear power, a very small contribution from renewable fuels, and, of course, the free contribution of the Sun in the form of crops, forestry resources and other biomass.
For the United States in 2006 the total expenditures for energy were 8.6 percent of GDP, according to the U. S. Energy Information Administration's 2008 Annual Energy Outlook. That's not inconsequential. But the importance of that expenditure far outweighs its size. If that energy were suddenly to become unavailable, the whole economy would collapse.
This implies that money is nothing more than the ability to command energy to do what we want it to do. This energy can be expended by people doing things we want them to do or by machines running on some form of energy with or without the assistance of people. The reason it is important to understand this is that modern neoclassical economics assumes that it is possible for money to conjure up substitutes for anything. Alas, there is no substitute for energy.
People like to believe that technology will allow us to find and develop the energy needed to grow the global economy. But even that technology presupposes an adequate energy supply to run the technology. And, while technology has enabled us to find and extract vast amounts of energy from the Earth in the form of fossil fuels, to build large dams to produce electricity, and to build nuclear power plants, there is no guarantee that this trend will continue indefinitely. And, simply throwing an abstraction like money at the problem of energy sufficiency won't necessarily produce the real thing. High potential profits give incentive to people to devise ways to get energy for society. But high potential profits do not guarantee their success.
Another critical nexus between money and energy is the connection between current consumption and savings. When we think of savings, we think of something that is put away somewhere for use at a later time. But savings aren't stored anywhere. They are lent out by banks for current economic activity with the promise that those savings will be returned over time with interest. The same is true of the supposed surplus now accumulating in the U. S. government's Social Security Trust Fund. That money is lent back to the government which spends it on current consumption. Savings in all their forms, stocks, bonds, pensions, bank accounts, and so on, are really nothing more than a claim on society's future production which means, in reality, a claim on future energy flows. Absent those flows, savings would be meaningless.
Despite its critical importance in our economic life, we currently pay only a small fraction of our total income for energy. This is because, for most of our fuels, the Sun and the Earth have done all the work of concentrating them for us in the form of oil, natural gas and coal, which make up 86 percent of world energy supply. Essentially, the Sun and the Earth worked for free for tens of millions of years to provide us with our current one-time abundance.
If at some point society is called upon to put a lot more labor into obtaining and processing energy sources, say, by growing most of them, in all likelihood prices for energy will be far higher than they are today. To complete the circle, that means that money, the value of which is dependent on energy, would be worth a lot less. This would express itself in high energy prices and high prices for goods and services produced in the non-energy sector of the economy. The non-energy sector would shrink as a percentage of the economy as energy production began to take up a larger and larger percentage of the workforce and the total economy.
Should this come to pass, we would be living in a far different society from the consumer-based one we now inhabit.
Key words :
money and energy,
savings and money,
Peak Oil is Nonsense Because Theres Enough Gas to Last 250 Years.
Threat of Population Surge to "10 Billion" Espoused in London Theatre.
Current Commentary: Energy from Nuclear Fusion Realities, Prospects and Fantasies?
The Oil Industry's Deceitful Promise of American Energy Independence
Shaky Foundations for Offshore Wind Farms
As for technological fixes, the problem is that technological progress is a function of economic growth at current levels of technology. The net effect is an evermore ?efficient? liquidation of natural capital. See:
Czech, B. 2008. Prospects for reconciling the conflict between economic growth and biodiversity conservation with technological progress. Conservation Biology 22(6):1389-1398. [Page proofs posted here for those without access to Conservation Biology: http://steadystate.org/Files/Czech_SCBTechnology_Page_Proofs.pdf
Brian Czech, Ph.D., President
Center for the Advancement of the Steady State Economy
I am concerned that Mr. Barton presents thorium as a silver bullet for our future energy supplies. I am concerned when anyone presents anything as *the* solution to our future energy needs. That said, he most certainly has a point that thorium reactors could become an important energy source. I am interested in some citations that might help me understand why Mr. Barton believes that "[t]horium can be economically recovered even at average crustal concentrations with very favorable EROEI," though I am pleased that he, unlike so many, understands that analysis of energy return on energy invested is critical to evaluating a prospective energy source.
As for expressing concern about future energy supplies for human civilization being silly, I would guess that Mr. Barton has studied thorium as a possible energy source precisely because he, too, is concerned about future energy supplies. As for Malthus, well, I think he is widely misunderstood. Malthus believed that certain forces keep human populations in check: war, epidemics, starvation. In this he is correct. Human populations would be far greater today were it not for these forces. What Malthus could not have known about was the contribution fossil fuels, especially oil and gas and their effect on agricultural productivity, would make in supporting vastly larger human populations. (He died in 1834.) But these fuels are one-time gifts of nature and without them, absent some alternative of equal versatility and scope, human populations would crash. I think people should be very, very concerned about that.
One more thing I would like to learn from Mr. Barton and that is our progress to date in building thorium reactors. I have no doubt that they can be built and that they produce net energy. My concern is something I raise in a previous column, Will the Rate-of-Conversion Problem Derail Alternative Energy? The transition to new sources of energy must proceed rapidly in my view if we are to avoid a highly destabilizing, perhaps even fatal, gap between the energy supply we need and the energy we have. Fossil fuels, which make up 86 percent of our current energy supply, must be used to build the next energy economy. If they start to decline before that new economy is substantially built, we will face huge problems. If you believe we have forever and a day to make the transition, then, of course, there is no need to worry. I have a much shorter frame in mind.
I think Dr. Czech makes a crucial point. Let's assume that we humans are able to obtain ever growing energy supplies. The result would be biospheric destruction on an even more epic scale than today. Since we actually know comparatively little about how the various natural systems of the planet sustain us and what tipping points might undermine them, it behooves us to create large buffers of safety so as not to cross those tipping points. Those who say, "Look, nothing has stopped our growth so far, so that means we should keep on going," are courting disaster. What we do know about natural systems and populations is that populations on an exponential growth path eventually crash if they don't otherwise stabilize or come back back down to a level which the environment can sustain. I discuss some of this in a blog entry earlier this year. It is quite possible that we are approaching multiple limits, not just limits in energy.
Mr. Henshaw talks about an emerging field of study, sometimes referred to as ecological economics, but now being extended further, especially in the work of Charlie Hall, the originator of the EROEI (also know just as EROI - energy return on investment), who is working a textbook on biophysical economics. Hall doesn't dismiss the necessity of analyzing markets which is what much of mainsteam economics focuses on, but thinks that natural systems must become an integral part of that analysis.
Chris, I look forward to your post!
[The process of creating money by creating debts is remarkably well explained in a video entitled ?Money as debt?, by Paul Grignon.]
All over those past decades, such perpetuation of growth has been fed by increasing energy flows, as show the annual energy production curves drawn from the ?Schilling & Al. (1977), IEA (2002), Observatoire de l'Energie (1999)? data.
But it seems now that our world has reached the threshold beyond which it can no longer increase its flow of energy produced at low cost and sold at low price while simultaneously being able to satisfy growing demand. As a consequence, its money-lending and investment capabilities are strongly reduced. And it seems likely that credit-and-investment crunch and energy production ?plateauing? or ?peaking? (1) (and afterwards declining) will reinforce each other in the near future, while over-indebtedness will probably go on inflating and borrowing solvent investors will become few and far between.
Concerning what says Charles Barton, I believe there would have been a great potential for energy harvested from thorium if our world had started the business much earlier. But it is probably too late now, in the present and near-future expected circumstances, and I agree with what is said in comment  .
(1) Some readers may know that there has been a fierce debate, opposing experts, about the name that should be given to the summit of oil production : ?Peak? or ?Plateau? ?
I offer a 'somewhat well referenced article' posted on THE OILDRUM, October 20, 2008, maintaining that economic and population growth were facilitated by the shift from hunter gathering to farming, and that this open-ended expansion of the total human enterprise has been responsible for the environmental destruction that has been escalating for the last 10,000 years. I think you will agree that IF my thesis, which is the culmination of my ~ 42 year investigation into the relationship between humans and their supporting ecosystems, is correct -- then the 'population bomb'-that continues to make natural resource management problematic-exploded a long, long time ago, see:
'Agriculture: Unsustainable Resource Depletion Began 10,000 Years Ago' at;
My 'guesstimate' for sustainable human numbers in the 100s of millions, if true, suggests that the present global population has so far overshot the carrying capacity of its supporting ecosystems that most analyses of the relationship of excessive human numbers to SPECIFIC ASPECTS of environmental damage are simply indulgent academic exercises.
There are now (and have been for millennia) more people on the planet than it can sustainably support.
Many of us have concluded that even TWO CHILD FAMILIES -- that would only slowly stabilize the human population -- are not an adequate response to this problem; we require the adoption of NO or ONE CHILD PER FAMILY behaviour to orchestrate the Rapid Population DECLINE that is necessary now.
I expect that anyone, who is truly interested in the reasons that open-ended population and economic growth are so widely espoused, will find great interest in reading:
MAIN COMPONENTS OF THE GLOBAL MONETOCRACY at:
-which discusses the current debt-based global money creation system that is responsible for much of the expansion that has rapidly increased our rate of environmental destruction in the last few centuries.
FIRST, Instead of the banks creating money by issuing debt (a system that requires open-ended growth to encourage people to borrow)-
- money creation/printing (when required) should be the responsibility of government -AND- money created/printed should be spent into the economy by government on infrastructure projects (such as road, bridge, water distribution system and sewer REPAIR) that are approved by democratic referenda.
SECOND, We might actually be able to convince the voters that a STEADY-STATE economy would be worth pursuing; this would logically require programs that would orchestrate a stabilization or even a reduction of human population numbers.
Research Scientist, Canadian Wood Fibre Centre
Natural Resources Canada - Canadian Forest Service
Government of Canada
P. O. Box 4000, 1350 Regent Street South,
Fredericton, New Brunswick, E3B 5P7, Canada
Tel.:(506) 452-3548, Fax: (506) 452-3525
Chercheur scientifique, Centre canadien sur la fibre de bois
Ressources naturelles Canada - Service canadien des for?ts
Gouvernement du Canada
C. P. 4000, 1350, rue Regent sud, Fredericton (Nouveau-Brunswick) E3B 5P7, Canada
T?l. :(506) 452-3548, T?l?c. : (506) 452-3525
Courriel : firstname.lastname@example.org
As I was writing this piece I was thinking of Howard Odum's "emergy" concept though it would take a separate lengthy piece just to begin to scratch the surface of the implications of this idea.
Mr. Salonius I believe is correct to say that we have been mining rather than cultivating the soil, and for a very long time. I agree with him that substainable human populations would be much lower than those we have today. How much lower? No one can say exactly, but I suspect that it might actually be in the one to two billion range. That is, of course, just a guess and it presumes that we don't have a population crash to get there. And, so I think he is prudent to suggest that one or no children is the best approach to population. A gradual decline is much preferable to a dieoff. Mere population stabilization (the two-child solution) is not enough to reach sustainability.
Naturally, people will say that I am suggesting that such a policy be enforced through draconian measures. I am not. But ask yourself, what could be more draconian that a massive dieoff of billions of humans over just a few decades? Shall we just wait and see what happens?
This is incorrect. Neoclassical economics does not assume anything of the sort. Money has three functions and they are all independent of the notion of substitution: store of value, medium of exchange, and unit of account. Anything that can do these three functions for society is money.
A store of value simply refers to the fact that we can decide to delay our claim on production by holding money. This does not mean that money will maintain its real value, only its nominal value (thus $1 will always be worth $1 but what it will buy may change).
Medium of exchange merely refers to the fact that everyone accepts money as payment for goods and services and it allows us to eliminate barter as a faciltator of exchange.
Unit of account means that we denominate the value of goods in terms of it. We do not denote a car in terms of energy but, if we did, then it could serve the unit of account purpose.
The substitution issue only states that individuals are willing to substitute one type of good for another as the price of one good rises. This continues no matter what happens on the energy front. If oil rises in cost relative to coal, we start to use coal instead of oil (and even utilize the coal to oil conversion process).
So what happens when ALL energy items start to rise in price relative to non-energy items?
Well, first of all, we continue to substitute to those energy items that rise LESS. Second, yes, we will live in a far different society than the one we have now. However, it does not necessarily mean high energy prices (in nominal terms), although it certain does mean high prices for all goods (in real terms).
Let me explain. The value of money is exclusively determined in the long run by supply and demand and the equation of exchange provides an identity that we can use to determine what will likely happen:
PY = MV (where P is the price level, Y is real output, M is money supply, V is veolocity of money [number of transactions each $1 supports in a year)
If output plunges and velocity of money and money supply stay constant, the only thing that can occur is that prices will rise dramatically. In that case, we have high prices (inflation) and money is worth less. However, if velocity declines faster than output does (and it very well might if we lost most of our energy sources), nominal prices will actually fall. Of course, this is of little comfort to us because the low prices will be offset by low wages since we aren't producing anything. Thus, our standard of living will drop (i.e., the real price of all goods will rise based on each person's ability to labor) and that is the real problem with the loss of cheap energy.
So the issue that I have with this article is that instead of concentrating on the REAL economy (the production of goods and services), too much attention is being drawn to the NOMINAL economy (the monetary value of those goods and services). The problem for us if energy production halted is the decline in production. There is no issue with regard to the value of money, which really has no real value in the first place (in the long run, money serves solely as a mechanism for allowing individuals to claim production and to facilitate exchange, as it has no intrinsic value whatsoever).
Associate Professor of Economics
Winston-Salem State University
At this point, there are already two semi-sovereign areas (Hong Kong and Macau) that have below 1 child per woman birh rates. Interestingly, neither is subject to the one-child policy rule of Mainland China, which has an average of 1.72 children per woman (in China, rural woman are allowed up to two children and, of course, the Chinese government does not prohibited twins, triplets, etc.).
In more than 100 countries and sovereign areas, total fertility rates are below the 2.1 births per woman necessary for population to be stabilized (you need slightly more than 2 births per woman to achieve population stability because not all children make it to adulthood and because there are slightly more males than females who are born).
Of the 120 to 125 sovereign areas that are above replacement rate, at least another 50 will likely achieve a total fertility rate of less than 2.1 within the next generation. That means that there are only about 70 to 75 countries/sovereign areas in the world that are contributing to sustained worldwide population growth.
So what to do about them? In virtually all cases, there are two major problems that need to be addressed. First, there is the lack of availability of birth control so that those who wish to have fewer children have a viable alternative. Second, most of these countries are very, very poor. Increased economic opportunites for women and increases in income are the only factors which have been shown to reliably reduce the number of children that women have. When women have more economic opportunities and when incomes grow, people choose to have fewer children.
Thus the problem fixes itself without resorting to other mechanisms. No need for doom and gloom here. However, if we voluntarily start to reduce our economic output NOW, we are less likely to be able to achieve the increases in economic incomes that are required to ensure population reductions occur.
So, the real difference between optimists and pessimists is that optimists believe that we will naturally end up at the steady state if we take minor steps such as reducing inefficient use of our resources by greater recycling and advances in technology. Pessimists, on the other hand, would have us place ourselves on a crash energy diet. The problem that the pessimists see with the optimistic solution is that we might outstrip our ability to extract resources. The problem that the optimists see with the pessimistic solution is that we will never get the increases in income necessary to achieve population reduction naturally.
However, there are two reasons to think that the pessimists must be either overstating their case or they really are contemplating draconian measures to reduce population. First, even draconian measures such as those undertaken in China and (at varying times) India have failed to achieve reductions in fertility rates that rival those found in countries that have achieved income growth. Indeed, comparing the Chinese and Indian experiences to countries that did not undertake family planning programs but which also achieved high levels of income growth (such as Japan and the so-called Four Tigers of Singapore, South Korea, Taiwan, and Hong Kong) suggests that relatively little of the reduction in total fertility was achieved because of legal measures and far more of its was achieved simply because the Chinese and Indians are becoming wealthier. Yet pessimists would deny us the tool of population reduction by reducing our capacity to increase wealth through their insistence on reductions in energy consumption prior to hitting a natural peak.
Second, even if tomorrow we could achieve a fertility rate of 1 birth per woman, it would take more than 100 years to achieve a total worldwide population of 1-2 billion people. However, many pessimists would suggest that the population of the Earth needs to decline much more rapidly.
Thus, by denying on the one hand, the tool to reduce population most dramatically (economic growth), while at the same time arguing for such drastic cuts in population that are impossible to achieve in any type of free society, the logical end result is that whether they consciously agree with it or not, they are arguing for the equivalent of Hitler's "final solution."
Now it is definitely true that optimists might be leading everyone to a massive dieoff but they are certainly not doing it by design, unlike the pessimists. Optimists might be leading everyone to death but pessimists are doing so with absolute certainty . Even if pessimists are somehow able to convince everyone to reduce their populations voluntarily, they are also arguing for reductions in incomes and this is quite problematic because reductions in economic incomes will result in worsening of medical care, safety innovations, sanitation, etc. We must remember that poverty is the leading killer in the world according to the United Nations. Yet, reductions in economic growth will only increase poverty because those who have will be less likely to give up to those who have not, if they are already forced to have less through reductions in economic growth.
Of course, the pessimists always have one final arrow in their arsenal: "Shouldn't we do this (reduce our consumption, etc.) even if we end up being proven wrong, since the danger that we face if we are right is so much greater than if we continue our present ways?" My answer, however, is a resounding "No."
At first, such a response might seem nonsensical. After all, the potential harm seems so great (everyone dead) and the potential cost seems doable. However, the problem is that the doom and gloomers keep crying wolf, so we learn that we shouldn't respond to them. Does this mean that it won't eventually happen? No, it might happen the way the pessimists argue. Then again, the Dwarf star Nemesis might send Nibaru to crash into the Earth in 2012 and then we don't really have to worry about running out of energy either, right?
The fact is that the doom and gloom scenarios painted by those who argue that we are running out of energy have been given over the past 150 years with regard to oil. Every year, it is estimated that we have less than 20 years of oil left. Somehow we always have that same amount (or even more) after 20 years have passed. So I must again take the position of Julian Simon: the carrying capacity (for all practical purposes) of the Earth is limited only by the human ingenuity and not by the physical resources that we have on this Earth.
Associate Professor of Economics
Winston-Salem State University
Perhaps the most important thing for the professor to tell us is this: Can he give us warranty on our society and our biosphere if he is wrong?
Mr. Cobb is completely wrong by arguing that I am urging a "laissez-faire" attitude. Go back to my own arguments and you will see that this is a complete distortion of my position. I argue for sensible regulation through the price system (i.e., through use of taxes to discourage consumption and by allowing tradable permits, which is another free market solution). This is hardly "laissez-faire" (which would imply no differential taxation of consumption on the basis of environmental externalities) and it is indeed exactly what I would consider to be "sensible risk management." I do not believe that Mr. Cobb's argument for a dramatic (immediate?) reduction in our energy consumption (in light of the poor predictive power of neo-Malthusians with regard to worldwide resources in the past) is either advisable or necessary. A properly functioning price mechanism will signal when we should reduce our consumption pattern. Indeed, if the energy "peak" is either a plateau or a slow decline we have nothing to worry about. It is only if we have a catastrophic "cliff" that we have to take measures such as what Mr. Cobb suggests. The problem is that in order to make everything work out the way Mr. Cobb appears to advocate (gradual reduction of population and a gradual reduction in standard of living), we would have to have that catastrophic "cliff" be decades, if not a century, away.
In other words, it seems from my perspective that either we can get away with doing these activities through the price system (my method) regardless. Oh, and if we cannot do it through the price system, NEITHER systems advocated (yours or mine) will work.
In any case, I really don't see how we are going to achieve the reductions you appear to desire at the pace you appear to desire WITHOUT massive infringement on individual freedoms. So, please tell me, Mr. Cobb how you are going to achieve these reductions voluntarily or are you going to do exactly what I fear and severely infringe upon our inalienable individual rights?
Since Mr. Cobb appears to be advocating a reduction in living standards for the West, exactly what are we going to do with our current society as we reduce our consumption patterns? As our population ages, we have devoted more and more resources to income security programs, essentially devoting a greater share of resources to non-productive members (in the economic sense) of society. If we guarantee a basic standard of living to them, it implies ever increasing tax burdens on everyone else, which will be even harder to stomach when those individuals are asked to reduce their standard of living as well. What is the incentive to produce if we are going to live by the maxim of from each according to his ability, to each according to his need? Or are you advocating an abolishment of our social safety nets?
Mr. Cobb is essentially correct that if the developed world reduced its consumption to a third world level, we would not have to worry about population (at its current level) itself. However, the requirements to ensure this would be a complete destruction of our free market economy and free society. Do you really want the government to dictate to you exactly how to live? What to buy? We have tried these mandates before: it is called communism/socialism. It doesn't work to deliver reliable services to the public (waiting lists for years to acquire phone service; massive lines for basic commodities; etc.). It fails to provide environmental protection: the former Soviet Union was a cesspool of severe environmental degredation. It also means the destruction of fundamental freedoms. Finally, it tends to serve political interests even more intensively than does capitalism. Indeed, isn't it interesting that prominant leaders of the environmental movement (Al Gore, Prince Charles, etc.) fail to implement for themselves what they ask for everyone else. Certainly, they purchase "carbon offsets" but they still jet around in private airplanes and have spacious houses that exact an incredible environmental footprint. Unless and until the politicians who have the ability to make environmental policy start to cut back on their own consumption patterns to the levels they prescribe for the common man, there is little reason for others to do so.
I have no problem taking sensible actions to reduce our imprint on the environment. I agree with a massive increase in taxes on specific forms of consumption. I agree with tradable emissions permits and carbon cap and trade systems that preserve the price mechanism. However, I see as foolhardy an attempt to do what simply politically CANNOT be done: forced redistribution of wealth on a massive worldwide scale so as to scale back First World (US/Canada/Europe/Australia/East Asia) consumption to such a degree that we are essentially bringing our societies to a third world level. How is this to be accomplished? Are we going to have massive redistribution efforts? Who in the First World democracies are going to vote for these policies? Or are we going to have a One World Government that will systematically engage in forced wealth redistribution? Politically infeasible solutions are simply that: politically infeasible.
Finally, the notion that I have to provide a "warranty" is ridiculous. First of all, Mr. Cobb is proposing (or at least it appear to me to be the case) the destruction of our society anyway so the first part of my "warranty" is unwarranted (unless Mr. Cobb can explain how his system saves our society). Why should I warrant something that Mr. Cobb (apparently) wishes to discard in the first place? I cannot guarantee that we will be able to utilize resources that are not there (if his hypothesis is correct) but neither can Mr. Cobb guarantee that there are not far more resources than he believes currently exist. I merely am arguing that if his hypothesis is correct and if our society chooses to reduce its consumption voluntarily because of their belief in his arguments, we will be able to achieve the same results that he wants without as much human suffering through the exclusive use of the price mechanism. As to the biosphere, it is true that it is a danger but it is not as great as some in the environmental movement would make it out to be. It is highly improbable that we can do anything as a species (outside of nuclear war) that would so radically alter the biosphere that we would destroy it. Nature has this funny way of periodically species cleansing the environment and the danger would be that we would be part of that cleansing effort if we are not too careful. Yet, the proper way to solve this problem is, once again, through a price mechanism. If we could price our environmental diversity, then agencies such as the Sierra Club (for example) could be granted "diversity property rights" and then bring lawsuits for economic damages against environmental polluters and force them to take the cost of environmental damage into their cost calculations (alternatively, the Sierra Club could sell off reductions in biodiversity in certain areas for revenue generation and thus have funds to increase biodiversity in other areas). After all, the Lorax could not stop environmental degredation precisely BECAUSE he did not have any property rights to enfrorce. Who speaks for the trees? Nobody, unless somebody OWNS them (tragedy of the commons). Thus, the answer is MORE capitalism, MORE pricing, and MORE free markets, rather than less.
From my perspective, Mr. Cobb, you are the one who needs to provide a warranty since you are the one who wishes to change the system and claims that our current system cannot do the job fast enough. In light of the political, economic, and societal resistance to reductions in standards of living, do you have a warranty that if we do as you ask that the mechanism that you will undertake will not require massive human suffering in the interim?
Associate Professor of Economics
Winston-Salem State University
The professor talks of his concern about individual freedoms being infringed. In doing so, he tacitly admits that many of the so-called political freedoms we enjoy are not really political freedoms at all, but entirely a product of a high energy society. The freedom to travel is meaningless if you do not have the available energy to do so. The freedom to exploit resources under one's control is meaningless if there are no resources or there is not sufficient energy to do so. For example, low-grade ores cannot be exploited except with energy-intensive machinery which in turn can only be produced by a society richly endowed with energy resources to make such machinery. Low-grade ores do not yield to the pick axe. The freedom to choose consumer items from a wide variety of competing manufacturers in a global system only means something if the energy required to maintain the system is available. Those freedoms will be gone altogether if his prescription fails as well. They are not really political freedoms but economic freedoms based on available resources.
But perhaps the most revealing statement he makes is the following: "the carrying capacity (for all practical purposes) of the Earth is limited only by the human ingenuity and not by the physical resources that we have on this Earth." We now know explicitly that he believes in something which is not logical, the possibility of unlimited growth within a finite system. All of his arguments come down to this which must be an article of faith since it has no scientific basis. He argues for patience with our current system which he believes will achieve sustainability over time without any radical measures to change its direction. He argues this because he believes there is little risk to our ability to continue to grow indefinitely. And so, it is puzzling that the professor would even be concerned about the concept of sustainability, that is, an end to growth, since he believes economic growth can be unlimited.
As for granting us a warranty on the Earth and its systems, I was merely trying to illustrate that such a warranty is an impossibility. Once we commit to the professor's prescription for the future, we will simply have to live with the consequences, catastrophic or not. There will be no going back. That's why it behooves us to be exceptionally cautious about moving headlong in the direction he suggests. There will be no second chances for humanity if he is wrong.
On the other hand, if I am wrong, a sensible program of energy and resource reduction undertaken now as suggested above would not preclude a second attempt in the future at continuing the economic growth he suggests would be beneficial for humanity as a whole. In fact, that growth could then be undertaken with much less environmental damage using the highly efficient technology and practices which would result from the implementation of Tradable Energy Quotas. This is the asymmetry in our positions, and it is critical to understanding the exceptional risks we are taking with our current trajectory.
"He wrongly believes that measures aimed at rapid reduction in energy use will inevitably lead to poverty. So much of the world's energy is wasted that this does not have to be the case. This appears to be the core of his disagreement with me, and in this he is just plain wrong. Amory Lovins believes efficiencies on the order of 90 percent could be achieved *without* reducing our standard of living. "
Actually, this is NOT the core of our disagreement. The core of our disagreement (to my mind) is the degree of direct government involvement and infringement on our freedoms (as opposed to merely setting up self-regulating schemes such as tradable permit schemes or imposition of taxes, which, by themselves, do not prevent behavior, although they do certainly make such behavior more expensive) . That would be very good and I would certainly support any effort to do this. As you correctly note, I have no problem with taxes or tradable permits. However, to be fair, most commentary from Neo-Malthusians is based on the assumptions that (1) economic growth is the problem that we have to contain; (2) technology cannot get us out of it; (3) we are in imminent danger of running out of resources. The conclusion that inevitably results is that we must not only reduce energy consumption but ALL consumption. Very little is discussed about being able to use energy efficiency to achieve the goal (indeed, earlier discussions made it appear that you felt that this could not work due to Jervons Paradox but the paradox is easily solved by increasing taxation of the commodity in question).
It appears, Mr. Cobb, that actually you and I are on the same page with your response. Whether it is technology per se or an institutional mechanism, you and I are both suggesting that we should not dramatically sacrifice our economic standard of living and, for that, I applaud you.
There is, of course, one major problem with Tradable Energy Quotas (which are, based on the website you reference, simply another name for carbon emission trading permits, since their rating is based on CO2): not all energy can (or should) be reduced to a simply scale such as carbon emissions. Instead, we need to look at the TOTALITY of the environmental impact and provide separate tradable permits for EACH type of energy independently. I would also argue that the mechanism chosen is somewhat flawed and overly bureaucratic (for example, you really don't need a "personal quota" for "energy for your household" since the utility providing your electricity can be charged instead and would, if they were a private utility, consider those charges when setting pricing for you). Tradable permit systems on a personal level are particularly problematic in third world countries. It would be better to keep all of this at the industry level, where it is more easily regulated and where free-market principles are better applied.
"But such a reduction cannot be achieved without planning and without some of the taxes and quotas which the professor deems as acceptable. The most effective scheme I've seen proposed for reducing energy use is one called Tradable Energy Quotas, which assigns a quota to every person who is then free to use or sell his or her units of energy consumption."
Okay, now we have the crux of the problem. "Planning". As you note, I have no problem with taxes and quotas. This is a free market solution. I am always in favor of free market solutions. At the same time, however, now I find you to be too far to the RIGHT (on the political spectrum) of my position! Even with tradable permits (and I support ALL forms to tradable permits as such mechanisms simply produce MORE property rights and MORE capitalism, which I will continue to advocate as the solution to our problems), as I noted earlier, we require taxation of certain types of energy consumption due to environmental externalities. Correct pricing helps to ensure that people do not waste and we can use the taxes collected to pay people at the lower rung of the economic ladder. Such payments are preferable to keep prices low because it is relative prices for substitutes (driving alone versus taking mass transportation, for example) that dictates how humans make choices at the margin. What you want are relative prices that encourage BUT DO NOT REQUIRE people to engage in efficiencies.
Tradable energy quotas are simply, once again, a tradable permit scheme: again, a free market price-based solution. If you notice, I have never argued against doing anything that you want to do IF you have a free market solution to it as opposed to direct rule, yet much of what I had read previously was an indictment of such free market (i.e., price-based) mechanisms.
Still, what I want to know is exactly what "planning" will entail? Why not simply let the free market do the planning? Central planning (communism/socialism) simply doesn't work. If you want to leave it to the free market (by utilizing the price system), you and I have no issues. If you instead are arguing that government bureaucrats (and I used to be one) are the ones who should be placed in charge, I vehemently disagree because bureaucracies tend to emphasize political solutions rather than economic ones. More on this point towards the end of this discussion with regard to public transportation.
"The professor talks of his concern about individual freedoms being infringed. In doing so, he tacitly admits that many of the so-called political freedoms we enjoy are not really political freedoms at all, but entirely a product of a high energy society. The freedom to travel is meaningless if you do not have the available energy to do so. The freedom to exploit resources under one's control is meaningless if there are no resources or there is not sufficient energy to do so."
Um, no. The freedom to "exploit resources under one's control" of course requires resources and the ability to purchase the mechanism to control it but that is fundamentally different from stating that a third party (not you) should dictate to you how to use those resources. The price mechanism is the single best way of directly your effort in the most efficient manner. Any other mechanism is a command and control method that I oppose. Figure out a way to use the price system to use your goals and you will have no argument from this economist (you seem to think that I am concerned with the goals for society whereas what I really am concerned with are the mechanisms for achieving those goals: the first is a normative question, of which I have my own opinions but those are really outside the range of neoclassical economics; only the second can be answered through neoclassical economic analysis, which you have earlier berated and which I keep on defending).
"We now know explicitly that he believes in something which is not logical, the possibility of unlimited growth within a finite system."
First, of all, I already addressed your question about infinite growth in a finite system. It is INDEED possible and it is indeed absolutely logical (although counterintuitive), as shown mathematically, by infinite series. So long as you approach asympotically a limit without actually breaking through that limit, you can ALWAYS achieve infinite growth because infinite growth does not imply infinite sums (of course, growth must SLOW and become progressively less and less without ever becoming zero for this to occur).
Consider the following infinite series: 1 + .5 + .25 + .125 + .06125 + . . .
What does it sum to? The answer is 2. Yet, it is an infinite series. The overall amount continues to grow (but at a declining amount). Infinite growth is not only possible to achieve, it is automatically achievable even in a steady state (wherein we are completely balanced in terms of what enters and exits a system) provided we become more efficient in our provision. Proof of this is the amount of production that we can achieve in a hour. Certainly humanity is far more productive per hour (even for pure intellectual activities that require no external technology) due to accumulated human knowledge. Certainly as well, there are physical barriers such as the size of our brain that make our capacity to learn finite. However, we will never hit those limits and so they are irrelevant despite the fact that we are continuing to learn more.
Furthermore, since I am concerned with growing PER CAPITA INCOME once everyone gets rich enough to see declining populations (such as is true in the developed world), we can actually grow our per capita income faster even without growing the overall "pie" available.
Ah, you say, but then you *are* agreeing that there are limits to growth. Well, in a certain sense but not in the same sense as the neo-Malthusians. You see, arguments that technology and innovation won't save us are condemnations to being in the current system with our current technology and that is where optimists and neo-Malthusians appear to most differ. We are limited only by human ingenuity. Thus, while our current technology is (and, by the way, technology is not simply new physical tools, the introduction of a tradable permit scheme would be a change in technology as well according to economic theory) will dictate our limits to growth at that particular time and place, it is our human imagination which allows us to advance our production possibilities frontier. The point is that it is not an artificial resource-based limit to growth based on CURRENT technology that limits us. It is the ability of us to think outside the box and figure out new and better ways to more efficiently exploit the resources that we have. Economics is our savior, not a demon. Economists are merely concerned with doing things in the most efficient manner possible and find that the free market does this. It appears as though you and I share the shame concern with this, which I find to be a refreshing difference from most Neo-Malthusians.
Still, I would argue that the energy conundrum could very well be broken IF we are able to effectively solve the issue of nuclear fusion (that is why, yes, I would argue that it is indeed possible that we might find ourselves with "limitless" energy someday but that would not mean that we should not still be efficient with it because even "limitless" energy still has costs associated with it).
That being said, I do not know if we will be able to do this. It is for that reason that I state that human ingenuity is our limiting factor (since if we fail to figure it out, it is because of the limitations on our capacity to think of a solution, as opposed to our resources themselves). Think about the advances of the past 210 years since Malthus first wrote his Essay on the Principle on Population. Think about the ways that we can do things now more efficient (but simply CHOOSE not to). For example, we have the ability to have the paperless office. It is our stubborn desire to cling to the OLD that does us in. Even for those who do not like the fact that they cannot "touch" the documents, we now have
There is simply NO REASON to kill all of the trees that we are now doing to make paper. What is the solution? Not by subsidizing the new technology that replaces paper but instead by slowly raising the cost of paper to reflect the true environmental costs of the old technology. Why not subsidize the new technology? Because to do so would introduce potential perverse incentives. If I can do without transfering documents to the "paperless paper" device, I should do so. Simply discard that which I do not need instead of being a packrat. But subsidies encourage consumption just as taxes discourage it and the best solution is simply get rid of the document as soon as one is finished with it in the first place.
Let's see Mr. Cobb's plan in action: "public transportation, rapid introduction of efficiency measures in buildings and factories, changes in energy-intensive agricultural practices, taxes on energy uses"
Going from the last item to the first, I have no problem with "taxes on energy uses". I have already argued with taxes on energy that damages the environment, so where's the beef? As to "changes in energy-intensive agricultural practices", guess what happens when you tax envionmentally-destructive energy? You reduce energy-intensive agricultural practices. However, I see no reason to tax energy mechanisms (such as wind/solar) that do not appear to cause problems with the environment, so I would not advocate an across-the-board method (of course, I do not choose to subsidize either but if you tax something that you do not like, it is equivalent to subsidizing that which you do like, especially if you use receipts from those taxes to pay people to be able to afford a certain baseline energy footprint).
How about "rapid introduction of efficiency measures in buildings and factories"? Again, efficient taxation will guarantee this without subsidies. Make inefficient mechanisms cost more and you will get this result too!
Of course, the question is: what about those who cannot afford it? Shouldn't we subsidize them? Once again, the answer is no. If you subsidize something, it makes it harder to get on the bandwagon for the next great innovation. In addition, it makes it difficult to "wean" industries off of subsidies once their costs come down. Finally, we simply cannot afford to subsidize every new technology. The fact is that subsidies are claims on the public purse that continue ad infinitum.
I believe that this brings me to the last and only point that I cannot agree with you on: public transportation. I would agree if we were to discuss the need for "mass transportation" but public transportation is a red herring. Too often we propose spending billions of dollars of the public purse on the mistaken notion that we should subsidize public transportation. However, public transportation systems often fail to do anything more than assuage liberal guilt over the environment. Let us take, for example, the SMART rail plan for Sonoma County, California. Their plan would have 5,300 people take the train each day at a capital cost of $440 million (there is also $70 million to be spent on a bike/pedastrian pathway project under the same bond but that is a separate subject). However, here is the kicker: for the three largest cities, stations are "designed with no park and ride facilities, only bus and feeder services to further enhance congestion mitigation." Hmm. How does this REALLY alleviate congestion when the trains only come once every 30 minutes and then you would be forced to take a bus? Instead, what it means is that commuters from these cities who live outside of bus service routes are forced to drive FURTHER to go to one of the suburban areas to be able to part and ride. What is more likely is that such a service will simply canibalize existing public (bus) transportation systems in favor of rail as opposed to actually significantly reducing the car traffic. Furthermore, one of the ironies of public transportation is that by making communting costs lower (by reducing traffic flow on the freeways), you actually encourage MORE car trips! Finally, the major difficulty with public transportation is that it is often offered in certain places (as opposed to others) because it is politically wise to do so rather than because it makes good economic sense. In such cases, you once again have inefficient use of resources that would not occur under free enterprise.
In any case, why subsidize again? If the transportation network truly makes sense, then someone in the free market should be willing to provide it. We used to have exceptional PRIVATELY OWNED AND OPERATED mass transportation systems available in this country. It was the blatent use of public SUBSIDIES (through the public financing of our extensive road network and inadequate taxation of cars and gasoline to account for their externalities) that caused us to eliminate this viable option for mass transportation. So I am in favor of mass transport but not necessarily public transport.
In any case, such prescriptions would go a long way towards generating a more efficient society in all respects as we tax activities that cause significant negative externalities (such as gasoline usage) while reducing taxation on activities that reward human ingenuity (such as income taxation and capital gains taxation) and ensuring through a baseline transfer of funds that the higher prices do not adversely affect the poor (who, in reality, consume little energy anyway when compared to the affluent).
Associate Professor of Economics
Winston-Salem State University
As he noted in that article (Why Energy Efficiency Won't Matter Without Energy Caps, March 25, 2008) but which had not registered with me until he mentioned the author's name in his response to me (since in his earlier article he did not give the author's name), Amory Lovins argues that we can DOUBLE our wealth while HALVING our resource usage. However, Mr. Cobb has stated, "I believe it is a mistake to think in terms of doubling our wealth while halving our resource use as suggested by one of the world's foremost energy efficiency experts. Surely, it would be a good thing if we did it simply because we would reduce our resource use radically. But it is the growth mentality itself which must be overcome if we are to make it all the way to sustainability."
This is where Mr. Cobb and I do not see eye to eye. The key to prosperity is to grow so much (double our wealth while halving our resources would be a good starting point) so that we can achieve the demographic transition point. At that stage, our population would start to head DOWN and thus we can continue to increase our per capita wealth for quite some time in the future.
So the REAL question, it seems to me still comes down to whether we change our perspective on growth sooner or later. I would argue for later. Indeed, the next paragraph that Mr. Cobb makes is really an admission that we can have unlimited growth!
"Ultimately, they imply a steady state economy. It is an economy where the quality of goods and services can improve, but resource inputs cannot grow. And, it is clear from the devastation already wrought on the biosphere by our current economy that the steady state economy, in order to be sustainable in the long run, will have to operate at a level of inputs far below what we are experiencing today."
Now, at first glance, it would appear that this would imply a steady state. After all, resources aren't growing, right? However, economic growth is not about the inputs; it is about the OUTPUTS and Mr. Cobb admits that we can have a world in which the "quality of the goods and services improve". This, however, is IMPOSSIBLE in a true steady state economy. You see, if the quality of goods and services is improving, even if the total quantity is not, we have economic growth. Economic growth is not merely a measurement of the total QUANTITY of goods and services but rather a measurement of the total quantity of STANDARDIZED goods and services. Thus quality improvements show up in the GDP figures as INCREASES in economic growth! In addition, I would argue that it might even be possible to continue to increase the quantity of goods provided such goods rely on less resource intensive materials (such as the aforementioned paperless paper and its impact on books). Indeed, greater storage capacity on computers has enabled us to "do more with less" in the computing field and the possibility of quantum computing would advance this cause dramatically since they, as opposed to traditional computers, use far less resources. Indeed, if we become ever more efficient (once again using technology) in devising parts for our goods, we can continue to grow the economy ad infinitum until we reach the limits of human ingenuity.
Once again, proof positive that the limits to growth are in our own human ingenuity and not in the resources that they earth has itself.
What does this mean? Once again, for all practical purposes the limits to growth are dependent on human ingenuity and NOT resources. Thus, Mr. Cobb is categorically inaccurate in assuming that we cannot have unlimited economic growth using finite resources and his own statements logically point to the same conclusion.
Associate Professor of Economics
Winston-Salem State University
When it comes to steady-state economies, we apparently agree that growth in outcomes and satisfaction can increase even when physical inputs are stable or declining. You should know that Herman Daly, the world's foremost living proponent of the steady-state, has always maintained that this is a feature of a steady-state economy for the steady-state refers not to our society, but rather to our relationship with the natural world, i.e., we are neither increasing our physical inputs nor are we polluting the natural world in a way that would harm its normal equilibrium.
That said, it would be useful for me to have a clarification. Does the professor believe that the world economy is close to the asymptotic limit he mentions or does he believe we have ample room for increased resource use to fuel economic growth? Or does he believe as I do that we are currently far into ecological overshoot and must therefore drastically reduce the physical inputs to the economy in order to come into balance with the environment so as not to risk the collapse of our society? Keep in mind here that I am not talking about population by itself for the important issue from an environmental point of view is the per capita resource use and pollution times the population. The Earth will essentially respond the same way to 6 billion people at current rates of resource use and pollution as it does to 1 billion people at 6 times the current rates.
I suspect the professor believes we have ample room to grow population and overall resource use for some time and that for all our disagreements, this has really been the hidden basis for our continuing colloquy.
Answer: The asymptotic limit actually describes what will happen AFTER we reach the stationary state of a fixed capital-labor ratio with stagnant technology. We have not yet reached that state, so we are not having to deal with the asymptotic limit. If we limit growth in natural resources by fiat or because of natural limitation, we will start in our progression towards the asymptotic limit to growth (unless technlogy saves us, which you have indictated in an earlier column the belief that it will not). So the real question is: have we reached the natural limits of resource extraction?
I believe that from a purely technical perspective, the answer is no, for all the reasons I will shortly enumerate. However, from a holistic perspective, the answer is yes, that we are probably approaching it. In other words, I suspect that we will decide that we do not wish to continue resource extraction ad infinitum for at least some of the reasons the environmental movement itself was born: we like to have pristine venues; our prosperity has awakened us to desires beyond our immediate needs; and we have realized that there are at least some resources for which we cannot maintain the current level of extraction.
As to why, technically, we are nowhere near the limit of (total) resource extraction possibilities:
* There are certain resources that we do not have to worry about conserving (solar power, silicon).
* There are other resources that are likely reaching the plateau of production and thus we will have to find substitutes in those cases where we utilize these resources extensively (gold) or we will have to discontinue their use in favor of alternative technologies (uranium). However, we have such substitutes available.
* There are still other resources where we once had limits but, due to changing technology, we can now create these resources and thus its limits are actually expanding rather than contracting (diamonds, oil).
* Then there are those resources for which we have exceeded our ability to extract them responsibility, chiefly due to the "tragedy of the commons" which can be solved by better allocation of property rights and improved awareness and regulation of externalities (fish).
* Only in the latter case, where we have already exceeded sustainability do we have to worry about limitation on the resource and only in the case where there are no good substitutes. However, there are substitutes for almost everything except the broadest of classes of goods and there are no such broad classes of goods (including energy) that are in imminent danger of complete and total collapse.
As noted, oil is really a case of a resource with expanding limits because of our ability to synthesize it from other materials (coal, natural gas, oil shale). In addition, we can often convert our oil-based products to alternative fuels (cars have run on power from the electric grid and even solar power).
As to the question of increased resource usage, I would argue that is a red herring. We really do not need increased resource usage to grow the economy. When we are faced with limited resources, we find other ways around these limits (using human ingenuity). In the face of an economy that could not generate sufficient finances to import petroleum in the aftermath of onerous conditions imposed on their country by France after World War I, German scientists developed the Fischer-Tropsch process to synthesize petroleum from coal. When diamond production threatened to limit industrial production (diamonds being a important resource used in machine tools), scientists successfully synthesized the diamond.
The interesting thing is that necessity (so to speak) is the mother of invention, as the saying goes. So I would not in the least object to doing everything in our power through selective taxation to make resources that pollute the environment or appear to be extracted at an unsustainable pace more expensive. In such a manner, we will spur innovation.
In addition, we should look at having a separate resource usage tax based on waste. The more you waste of a resource, the higher your tax rate. This will create the proper incentives to conserve and recycle. For example, here in North Carolina, I find it abhorrent that the government charges the same rate for garbage regardless of how much garbage you create and provides no credit for those who recycle. Indeed, when I decided to acquire a larger recycling bin (specifically so that I could reduce the amount of garbage going into the city landfill), the city made me pay the same price for that recycling bin as they charged for someone to purchase a garbage can. Furthermore, even though our household disposes less than the equivalent of one 13 gallon trash bag a week of garbage, recycling everything else that comes into our household, I pay the same rate as those who put 20 times that amount into the landfill and who fail to recycle at all. It is public policies such as this, not the economics profession, that is to blame for our wastefulness (indeed, it amuses some of my colleagues in the economics profession to no end in that I derive absolutely no individualistic benefit from my action and actually have driven up my costs because of my proclivity to recycle).
As to pollution, in point of fact, economic growth has proven to be a boon to the environment. As shown by Grossman and Krueger (1995), while economic growth at lower stages of development is harmful to the environment, after an economy reaches a certain point (a little over US$10,000 in per capita income), the process reverses and environmental quality improves with economic growth. One of the reasons for this is that once a population a certain threshold of prosperity, they can devote more resources to emissions control (prior to that point, other objectives tend to outweigh environmental concerns for the populace).
Now as to the question of an environmental tipping point, we very well might reach one with regard to CO2 emissions and, on that point, I believe that we need to do everything we can to keep a lid on those. However, that does not require the shuttering of our economy. Indeed, by reducing payroll and income taxes while simultaneously introducing a carbon tax, we solve two fundamental problems in our economy: creating incentives for work while reducing incentives to pollute. Indeed, if we do this by reducing predominantly rates at the lower end of the economic spectrum (perhaps by granting exemptions from taxation on the first $50,000 of income), we can accomplish a politically popular objective that both conservatives (who want lower taxes on business and individuals) and liberals (who want the tax burden transferred to the relatively affluent, which it would be in both cases since it is the affluent who would tend to pay the carbon tax and the poor who would receive the largest benefit from the raised tax exemption) could embrace. It will also likely promote economic growth even as it reduces global greenhouse emissions.
2) Question: Are we are currently far into ecological overshoot and must therefore drastically reduce the physical inputs to the economy in order to come into balance with the environment so as not to risk the collapse of our society?
Answer: We DEFINITELY disagree on this point. The reason is actually why I keep arguing that neo-Malthusianism is pointless. You see, from my perspective, if we are "way into ecological overshoot and must . . . drastically reduce the physical inputs to the economy" it really sounds to me like we need something on the order of a reduction of 80% in our resource usage within the 10 years (or some similar reduction/time frame), which I believe is not achievable without mass extermination (which we both agree is not a viable option).
However, maybe I am misinterpreting your call for reduction because of the doomsday warning attached to it. So we need to be careful and define EXACTLY how quickly and how fast we need to reduce these inputs. You see, neo-Malthusians are arguing that we are essentially on a runaway train with the tracks out ahead. Therefore, it sound like they want us to slam the breaks. Now slamming the breaks is not without its problems: it tends to cause a lot of injuries along the way so we don't want to slam them if there really is no reason to. On the other hand, if we are too fargone already to be able to do anything about it, there is no point in slamming the breaks either. Why cause panic? We are all goners anyway. Thus, my question to you is: why can't we slowly (say cut in half over 50 years) reduce consumption of those resources that have harmful environmental consequences owing to their production or consumption? If we can do this, why the doomsaying? There are plenty of good reasons to reduce the consumption of these resources without doom and gloom. If we can't do that, tell me how fast we have to reduce them. The problem is that if we have to reduce them too fast we will cause, at best, the very collapse that you wish to avoid or, at worst, the killing off a good chunk of the population. Neither of these are viable solutions to the problem.
That being said, I do not object to the concept of eliminating waste in resource usage and engaging in greater conservation and recycling efforts (especially as you have apparently conceded that we do not have to mandate a reduction in our economic growth). What I really have trouble with is the neo-Malthusian "sky is falling" attitude. We both seem to asking for policymakers to the same thing (reduce things that are bad for the ecosystem) but how you say something is often just as important as what you say. If you argue that economic growth ITSELF is a problem and that it must be controlled directly, you alienate a large segment of the population. Furthermore, you have all but admitted that this is not a necessary condition for your end result. Indeed, I would go so far as to argue that if you place artificial limits on economic growth so as to actively seek to stiffle it, the result will backfire as a retrenchment of economic growth is inimical to your stated goals.
That being said, is it the case that taxation will reduce economic growth. It is possible but it is not guaranteed. That was my key concern. The problem that I saw with the argument you first put out was that economic growth itself is NOT the cause of any of the ills in our society, although economic growth is sometimes associated with those ills. For example, economic growth can lead to environmental degregation when a company engages is strip mining. At the same time, economic growth can actually lead to environmental rejuvination when strip mining operations are required to account for their negative externalities by paying taxes on their activities that will (1) fund adequate land reclamation after their mines close (and the key is ADEQUATE, not the half-baked schemes allowed under current US law) and (2) pay for the externalities that they cause because of their operations on other parties during the operation of the mines (for example, but not limited to, paying for the cost of effluent treatment so as to not pollute water supplies and requiring mining companies to acquire the surface rights as well as the substrata rights for the entire breadth of their mining operations so that you do not have the problem as in Pennsylvania wherein homeowners and businesses are potentially endangered by having mine sinkholes develop under their properties).
The point is that we can come up with revenue-neutral tax systems that will penalize heavily all of the activities you do not like while reducing taxes on other activities that do not cause the harm over which you are justly concerned. In so doing, we can not only maintain economic growth but, in the long-run, we can actually INCREASE it because of the reduction in human health costs (and a consequent increase in human productivity).
You see, I don't have a problem with environmentalism when it framed in a win-win situation because it gets buy-in and makes us realize that we can utilize free-market capitalism (although guided in its direction via taxation of undesirable activities) as the engine for ecological change. Indeed, one of the major reasons for utilizing the taxation approach instead of the banning approach is that it will typically lead not only to more revenue but also increased compliance (see Prohibition in the United States for a good example as to why the banning approach is not as effective as the tax and let the free market decide approach).
All that is a roundabout way of saying, "yes AND no" to your question of whether we need to drastically reduce our resource inputs. We certainly have to drastically reduce CERTAIN inputs (those that cause environmental harm and those which are unsustainable in their extraction levels) but we don't have to drastically reduce ALL inputs for the reasons stated earlier.
Furthermore, HOW we choose to reduce them matters: a free market taxation-based approach will simply move our economy faster in the direction that we wish to take it and thus is the same type of positive modern state intervention that I have advocated for years. It also matters HOW FAST we choose to reduce them. Certainly, I doubt that Mr. Cobb advocates an complete abolishment of our oil consumption by, say, 2012. No, instead, we should seek to reduce our consumption levels and slowly increase taxation levels (or reduce cap and trade levels) so that we can reduce oil consumption at a manageable pace. Very small but steady reductions in our current consumption patterns will achieve large reductions in the not too distant future without causing severe pain to the economy (2% reductions each year in conventional crude for 25 years = 40% lower consumption of that resource) and can be achieved exclusively using higher taxation of such resources. Furthermore, this raising of the price of such resources will encourage the development of alternatives and the rapid introduction of new technologies so I prefer to give a positive spin on the whole thing and point out that there are good reasons to tax that have NOTHING to do with "running out of oil" (overreliance on trading partners who do not hold our same ideals, a trade imbalance that threatens our economic stability and the dollar, and the environmental damage caused by oil spills and increased CO2 emissions that is not paid for because of inadequate property rights regimes).
So, it isn't really true that going with my vision of the future will get us anywhere differently from yours, Mr. Cobb (at least with regard to oil). However, scaring people into thinking that the world (or at least our society) will end, I do not believe is the proper mechanism to motivate people and, furthermore, I do not believe that such a calamity will ever come to pass no matter what happens because as I've stated before, I believe that technology will find a way out. That means that even if we do nothing, eventually, the environmental issues will get to be so great or the cost will get to be so great for the resource (due to an imbalance between current production and consumption that cannot be met by drawing down inventories) that, like in Germany in the 1920s, scientists will find a way to substitute for another resource.
There are two dangers, however, with a neo-Malthusian approach that imposes non-market based solutions that are not present if we use a positive argument for economic transformation. First, we might panic into going too far too fast the other way is that the incentive mechanism for coming up with innovations will break down and we will find ourselves with a collapse of the economic system and no mechanism in place to save us. Thus, arguing that technology can't save us and that we are in imminent danger of economic collapse unless we put the breaks on economic growth has far greater potential for destroying our society. The second danger is that because we have heard the neo-Malthusian argument repeated for 210 years without ever having its dire predictions come to pass, many will simply ignore you as they currently are doing and thus you will get nowhere fast. The fact is that if we let the free market work, the price mechanism will cause resources to increase in price when their extraction rates are no longer sustainable and evidence from fisheries suggests that rather than complete worldwide cataclysmic collapse after years of rising production, we will instead see an undulating plateau for quite some time (and one of the reasons that fish stocks face the potential of collapse in the next 50 years is a lack of enforceability of property rights whereas if there were adequate property rights, better management of the resource would likely occur).
3) Question: Can we grow population for some time?
Answer: We MUST grow population for some time unless you want to engage in a mass extermination program (which you have indicated, quite thoughtfully and correctly, that you are completely against). There really is no alternative (well, I guess there is also mass sterilization but I would gather you are against that approach as well). The developing world is still rapidly growing (although at a lesser rate than before, due to enhanced economic opportunities and literacy, especially for women, and greater access to contraception). Even in cases where fertility has dropped precipitously, it will take a long time for this to translate into population reductions. For example, China, with its one-child policy, won't see a stabilization of its population until 2030.
Even in the developed world, where we have been below the replacement ratio for more than a generation, it will take at least another generation in many countries to see a dramatic decline in population. Lets look at a country like Japan (a country that has no net migration and only 1.3 births/woman, which is WELL below replacement rate), we find that the population is projected to drop by only 30% over the next 50 years.
4. Question: Can we grow resource usage for some time?
Answer: I think that the real question is: what do you think the carrying capacity of the Earth is and how fast do we need to reach it? The answer to that question dictates a wide range of policies. If we are way over the carrying capacity and we need to change things fast, it sends the wrong message to those in power to start thinking about genocide in order to achieve the goal of rapid reductions in resource usage (and we both agree that isn't a good solution). After all, it would take more than a century to cut the world population by 75% by 2100 even if tomorrow we were able to reduce the total fertility rate to the Japanese level (all of this is assuming that we reduce death rates in the developing world at the same time--if we don't improve their medical care and allow them to continue to die at current rates,especially as infants, in some countries of the developning world the fertility rate could be as high as 3 or more births per woman in order to achieve the demographic transition due to high infant mortality).
if we are only just above it or we can afford to engage in a short waiting period (say a generation or two) to start worrying about these limitations, we will achieve the demographic transition and our days of worrying will soon be behind us. After all, Japan's total fertility rate dropped in HALF (from 4 to 2) in a span of just 5 years in the 1950s and was basically steady for a generation before starting its precipitous decline in the 1970s. If we can get the growth rate up in the rest of the developed world, just as had happened in Japan, we could see our world population levelling off a lot quicker than anyone realized.
Grossman, Gene M & Krueger, Alan B, 1995. "Economic Growth and the Environment," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 353-77, May.
Thank you for your detailed and thoughtful response. You have given me much to think about. The key question remains whether we are far into overshoot or whether there is additional long-term carrying capacity still to exploit. I agree that fear-mongering is counterproductive since it only disheartens people to the point where they feel there is no reason to act, and I avoid this altogether when giving public talks and focus on what I believe we can and should do to create a sustainable society. On the other hand, if people do not believe that the task is urgent or believe it is something that "experts" will take care of, then I think we will be in trouble for I do not believe we have a couple of generations to make a successful transition. I could be wrong, but I'd rather err on the side of caution.
You are quite right that faulty emergency actions might bring about the very economic collapse that I perceive ecological limits may bring on. This is the conundrum of the transition. How do we get there without crashing our current system in a way that prevents further constructive action? This is no easy problem.
I am intrigued by your idea that we should tax heavily those things which we do not want and let the market sort out how exactly to take advantage of the things we do want, say, renewable, nonpolluting energy.
I am especially intrigued by your insight that we had perfectly good, privately run mass transit system in the United States that was ruined by subsidizing automobile travel (but also by the active collusion of those in the auto industry to destroy such systems). And, I have seen good schemes for re-creating such a privately run system. But then, the subsidies for automobile travel would have to end and this, of course, is very hard to achieve politically.
It seems plausible to me that we could use taxation and perhaps quotas to bring about a rapid transition to a sustainable economy, one that would not take 50 years. I keep coming back to the rate-of-conversion problem. Yes, the oil resource is large, but can we develop the infrastructure to get to it in time? And can we get the flow rates we want since flow rates are far more important than resource size? And I keep coming back to the net energy problem. No amount of technology can overcome the laws of thermodynamics. We can't make an energy source out of something that takes more energy to obtain than it yields. (Yes, it may be an energy carrier, but that is different from being an energy source.)
Finally, there are the great ecological systems upon which we rely, the forests, the farmlands, the oceans and the climate system. If we pretend that we know all about these and know exactly how much we can extract from them, i.e, if we imagine that we can manage them at current levels of extraction (or in the case of climate, greenhouse gas pollution) to give us what we want, I think this will turn out to be a big mistake.
We need rather large margins of safety when it comes to interacting with large-scale ecosystems since our understanding of these systems is rudimentary at best.
For these reasons, I am alarmed at our current trajectory. Perhaps you will be proven right and my alarm will turn out to be unwarranted. No one will be more pleased than I if this is the case. But if you are not right about the timeline for the changes we need, then I fear we will be in for a terrible reckoning.
Whether this reckoning can still be avoided is an open question which is why I keep writing and speaking.
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One Harvard researcher is pursuing this technology as a way to deliver cheap electricity to developing countries that need off-grid power sources, and the potential market is huge. Others companies, including Emefcy in Israel, see it as a way to treat waste water while generating electricity from a renewable source: waste.