« New: Encyclopedia of Earth | Main | Neoclassical Theory under Fire from the Sciences »

October 27, 2006


John Konop

Economists Are Destroying America

Economists, politicians, and executives from both parties have promised American families that “free” trade policies like NAFTA, CAFTA, and WTO/CHINA would accomplish three things:

• Increase wages
• Create trade surpluses (for the US)
• Reduce illegal immigration

Well, their trade policies have been in effect for about 15 years. Let’s review the results:

• Declining real wages for 80% of working Americans (while healthcare, education, and childcare costs skyrocket)
• A record-high 46 million Americans who don’t have health insurance (due in part to declining wages and benefits)
• Illegal immigration out of control
• Soaring trade deficits, much with countries that use slave and child labor
• Personal and national debt both out-of-control
• Global environments threatened by lax trade deal enforcement

Economists Keep Advocating Policies That Aren’t Working

Upon seeing incontrovertible evidence of these negative trade agreement results, economists continue with Pollyannish blather. Some say, “Cheer up! GDP is up and the stock market’s doing fine.” Others say, “Be patient. Stay the course. Free trade will raise all ships.”

Even those economists who acknowledge problems with trade agreements offer us only half-measures—adjusting exchange rates, improving safety nets, and providing better job retraining. None of these will close the wage gap in America—and economists know it.

Why Aren’t American Economists Shouting From Street Corners?

America needs trade deals that support American families and businesses in terms of wage, environmental, and intellectual property abuses. Why aren’t economists demanding renegotiation of our trade deals? There are three primary reasons:

• Economists are too beholden to corporations and special interests that provide them with research grants.
• Economists believe—but refuse to admit—that sacrificing the American middle class is necessary and appropriate to generate gains in third world economies.
• Economists refuse to admit they make mistakes.

Economic Ambulance Chasers

Now more than ever, Americans need their economists to speak truth and stand up to their big business clients. Instead, economists sound like lawyers caught chasing ambulances: they claim they’re “doing it for our benefit

Robert Metcalfe

I think to give EE a title as a 'post-normal science' does not mean that EE passes the Lakatos and Kuhn approaches to science. This terminology tries to give EE a name for itself which it would have not otherwise obtained. To place the word 'science' in the title is misleading, since EE is not a science. I would call it a holistic discipline, not a post-normal "science".

For example, I would not say that academics who believe in the strong form of strong sustainability have a "coherent framework for an extended participation in decision-making, based on the new tasks of quality assurance". In fact, I would suggest that they reduce participation in decision-making since the environment has the moral high ground over anything else.

Dave Iverson


"...to give EE a title as a 'post-normal science' does not mean that EE passes the Lakatos and Kuhn approaches to science." No argument here. That's why I posted this "post normal science" refresher.

As to the weak v. strong sustainablity argument, we need a bit more framing. Here's a start, Viewpoint: Strong vs. Weak Sustainability, by Robert Ayres, Jeroen van den Bergh and John Gowdy.PDF: http://www.tinbergen.nl/discussionpapers/98103.pdf

These authors highlight the inablity (or ability) to substitute "natural capital" (functioning ecosystems, etc.) for "human or manufactureed capital" as a distinguishing characteristic between the two: strong sustainability (limited or no substitution) v. weak sustainability (perfect substitution). Is this what you believe to "reduce participation in decision-making since the environment has the moral high ground over anything else"? If so, why so? If not, then why do you find the strong sustainability argument so off-putting to engagement?

Robert Metcalfe

That paper does not do a good job of covering all aspects of sustainability debate. There is a spectrum of views that can be (roughly) placed under four categories: Very weak S (infinite perfect subs), weak S (NK as a source of welfare as well as a source of production), strong S (critical NK), and very srong S (no subs). Now I specifically mentioned the latter which suggests no substitutability full stop, both in the sink and source side. This clearly reduces participation in decision-making since it clearly states that the environment rules and you cannot trade it off against other policies/capital/etc. That is what I find so off-putting for engagement and find it very unhelpful. I am all for PP and SMS, but to say all K is critical is nonsense. Would you agree?

Dave Iverson

Very likely I would agree, Robert. But we need to know who advocates for "very strong substitutability." Aldo Leopold once said that the "First rule of intelligent tinkering is to keep all the pieces." But he was speaking metaphorically. Certainly we need to eke out a living in nature, hence we are going to use some materials from nature. So, yes, I suspect that I agree with you. But I want to see an example of what you find so off-putting. Do you have one?

Robert Metcalfe

Well very strong S believes heavily in bioethics, and has a total abondonment of CBA. That is what I find most offputting - it reduces to the affective system always dominating over the deliberative system.

Dave Iverson

OK, Robert. But I still want examples, hyperlinks, author names, etc. I want to see who you believe advocates for such "affective system always dominating over the deliberative system."

Peter Pogany

Raising the Status of Ecological Economics: Paradigm and Transdisciplinary Modeling

Ecological economics ought to become more helpful in the ongoing transformation of collective thinking about the constraints and prospects of human civilization. It should respond more effectively to orthodox academe’s disparagement of its authenticity and relevance as a field of scientific endeavor. Both goals could be served by positing a clear paradigm and by accelerating the accumulation of knowledge through the development of transdsiciplinary general equilibrium models. This article is devoted to the paradigm issue, giving only a brief, introductory characterization of envisaged transdisciplinary modeling at the end.

Following Thomas Kuhn’s widely used conceptualization, a principle or proposition can be considered a scientific paradigm if it is sufficiently narrow to form a clearly visible and readily understood kernel of unifying insight that crystallizes massive amounts of theoretical and practical work. It must enduringly reflect the relevance of its evolving problematic. With license, the paradigm is like a star defined by its field of gravity as it soars through the cosmos. While nothing happens within its realm without seeing its obvious and overwhelmingly crucial relevance, it reveals a potential for the development of problem-solving strategies, a network of interactions, hierarchy, and new traditions.

I suggest that ecological economics ought to spell out the thermodynamically closed nature of the terrestrial sphere as its paradigm. This move would disengage it from catfights with the increasingly senile “normal science” of mainstream economics stuck in Panglossian dead-end streets. But let us recap some basics before going any further.

Terrestrial Sphere
Imagine that we are enclosed in a bulb that has a diameter of 20,000 miles centering on the Earth’s core. As it rides around the sun and with the solar system through the empyrean vastness, meteors enter it, spacecraft are sent out from it, hydrogen atoms escape from it; nuclear explosions annihilate dust within it, but for all practical purposes, the weight and composition of matter remain fixed in this 3-D surface.

Modern thermodynamics distinguishes among three kinds of systems: open, closed, and isolated. The open system exchanges both energy and matter with the exterior; the isolated exchanges neither. Obviously, the terrestrial sphere is a closed system. Whatever we do with matter -- incorporating it into our bodies, using it as raw material, discarding the bodies, throwing away or reusing matter again and again -- our virtually permanent weight and composition of atoms remain constant. The matter that we are and use just rolls around “in the earth’s diurnal course with rocks, stones, and trees,” to quote William Wordsworth.

Meet Leviathan
It is us, if we define the sum of human biomass and all human-crafted objects (from infrastructures to plastic toothbrush holders and talking teddy bears on Wal-Mart shelves) as a single physical entity. This summation is possible because animate and inanimate structures have their smallest common denominator -- subatomic particles. Leviathan has been gaining weight at an exponential rate for centuries, explaining both what most of us consider progress (actual and potential improvement in the quality of life for swelling ranks of humanity) and what we have every reason to fear -- the specter of economic dislocation and ecological disorder.

Over time, Leviathan is an increasing throughput of matter. As world population and economic output increase, it ingurgitates and ejects ever more immense quantities of energy contained in matter. Useful matter goes in, degraded matter comes out and remains, of course, where it came from -- the terrestrial sphere.

Individual life requires thermodynamic openness. To exist, the organism must exchange both energy and matter with its immediate surroundings. We live in individually open spheres within a broader system that is closed. Obviously, as the world’s expanding population and economy encounter environmental and resource constraints, the prevalent glaring inconsistency will have to be worked out at the global level. This, however, is easier said than done.

Socially conditioned behavior tied to the unconscious belief that our civilization exists and expands in an open thermodynamic system has been extended to communities, business firms, industries, and nations. Practically all groupings and organizations, small or large, behave as if they also lived in an open thermodynamic environment. “Not in my backyard” is the primitive manifestation of a deep and ominous conviction: “My thermodynamic environment is open; you deal with it.”

Neglect and lack of information are not the only problems. Ignoring ecological reality is endemic to present-day social science. Given the practically unlimited availability of solar radiation and Einstein’s famous discovery of the equivalence of mass (matter) and energy, resources appear to be unlimited. It seems that eternal progress in science and technology, i.e., accumulated information, can support economic expansion on this planet ad infinitum. “Ay,” dreamers of Utopia, “there’s the rub.” Theoretical equivalence between matter and energy hides an important asymmetry. While we can produce energy from matter, we lack the technology to do the reverse in economically significant quantities. Moreover, transforming energy requires matter – solar "panels", hydroelectric and wind "turbines," geothermal "stations," etc. Thus, energy cannot pick up the tab for accessing or regaining useful material structures without further degrading matter. Energy enclosed in terrestrial substances is capable of performing a fixed amount of work and this represents a binding external constraint for human expansiveness. Leviathan draws from the absolute maximum amount of free energy (the sum of kinetic and potential energy of all particles) the terrestrial sphere can possibly release. As a certain consequence, rising energy and material costs are bound to become a secularly growing drag on global economic growth. It is very likely that this will become apparent during the first half of the current century.

Fudging, Spinning, Chopping, Dropping
Few own up to the elementary physical fact that the terrestrial sphere is thermodynamically closed. And the room for practicing the art and science of avoidance is spacious. One great source of beating about the bush is the composite nature of the concept “closed.” The following is a quote from the website of the International Society of Ecological Economists (ISEE):

“Ecological economics is a transdisciplinary field of inquiry that facilitates solutions to environmental problems and the integration of new ideas to create a sustainable world. It includes a preanalytic vision of the economy as a part of the relevant whole, i.e. planet Earth, which is a thermodynamically open, but materially finite system.”

Emphasizing partial openness while suppressing and spinning the isolation in terms of matter, the last sentence borders on the humorous, like the abstract joke: “The Czarina and Rasputin had an argument. Both sported beards, except the Czarina.”

Distance between the Earth’s center and its surface is roughly 3,400 miles (difference between equatorial or polar directions). The remaining 6,600 miles to the boundary of the terrestrial sphere (we have a radius of 10,000 miles) allows for stratification, the creation of divisions among which gas molecules (i.e., matter) move, suggesting openness. For instance, if we define the Earth inclusive only of its rocky body and the troposphere it will not be strictly closed. Theoretical pedantry rejects “strict closedness” based even on minute changes in the planet’s weight as a result of meteors coming in and unrecoverable space equipment going out. It may remain unacknowledged in light of distant intentions to mine the moon and “terraform” Mars with permanent settlements in a few hundred years. With all these factors in mind, even thoughtful authors of classy ecological economics textbooks may say things like “It is not strictly true that ‘the environment,’ i.e., planet earth, is a closed system in a thermodynamic sense.” Or, “The Earth closely approximates a closed system.”

Besides the superabundance of energy and its fixed exchange rate with mass already mentioned, one can see attempts to weaken or eradicate the onus of humanity’s ecological reality by references to photosynthesis, the vastness and constancy of the planet’s material resources (essentially, making the first law dance center stage and forcing the second law to perform with its back to the audience). Applying material interactions over cosmic or geological time scales (i.e., the long history of the planet’s formation and the evolution of its ecological order) to the world’s current and foreseeable conditions and problems is also deceptive.

Discarding nonsense while taking technically and prospectively legitimate aspects into account, the paradigm of ecological economics ought to be: "In an economic sense, human civilization exists in a thermodynamically strictly closed area unless and until the terrestrial sphere is opened by capturing matter from and/or in outer space."

Struggle for Ecological Realism
Flaws in the standard vision about the environment and natural resources cannot be ascribed to simple oversight on the order of some arithmetic error. It raises complex questions that only broader cultural studies with socio-psychological and political economic dimensions can answer.

The world is in a preconscious state, its economics is pre-analytical, and its culturally ingrained optimism about gaining weight indefinitely in a materially isolated space is doomed to sobering experiences. Eventually, global society must become fully and permanently conscious that its existence and future are conditioned by both the first and the second laws of thermodynamics. (The third one, which allows the first two laws to be valid, is taken for granted.)

Socrates compared his dialectical method of helping the recognition of truth to a midwife assisting a woman in labor. If the baby to be born is humanity’s physically correct ecological macro-perspective, then one of the tasks of ecological economics -- the competent and morally well-intentioned midwife -- is to chase the anti-midwife -- the one who is trying to push the baby back into the womb -- from the bedside. But let’s face it, the anti-midwife has muscles, her feet are firmly planted and her hands hold a firm grip on places where it counts. Dislodging “normal science” with its Ptolemaic paradigm about the world promises to be a long and arduous struggle.

Helping the anti-midwife is the inertia of institutional thinking with its deeply-rooted and tradition-bound core of canonical beliefs; its power to coax out adaptive behavior in individuals. Like the fluid that takes on the shape of the container, our reasoning is trapped and molded by the prevalent “language game” (Wittgenstein) cross-bedded with personal interests. (Just as we can be sure that a stone thrown into a police station will prompt the appearance of a policeman, we can also expect that tenure-track assistant professors will agree with their department chairmen -- who are rarely appointed for challenging established knowledge.) Constraining biases of the defunct paradigm gain support also from mistakes made by representatives of the emerging paradigm.

Historically, Nicholas Georgescu-Roegen (1906-1994) has been the most significant exponent of the role of entropy in the economic process. But one may wish he did not name the assertion that all interactions among material substances increase the proportion of latent energy in the terrestrial sphere the “fourth law of thermodynamics.” And even the most ecologically conscious economist is irritated by the suggestion -- which, by the way, may well have been nothing more than an effect-seeking rhetorical quickie -- that man’s best use of “nature’s dowry” would be to produce plows and harrows instead of cars and agricultural tractors.

The irritation of this last thought lies in an unrecognized (or perhaps not widely articulated) relationship between the accumulation of matter-specific entropy in the terrestrial sphere and human progress. Entropy is cost in the aggregate. If a contemporary college graduate of physics knows more about matter than Newton did, then it is thanks to the degradation of matter associated with the knowledge and equipment required to know that trillions of changes per second occur between matter and antimatter deep inside the subatomic universe. If a student of Newton’s at Cambridge knew more about matter than Aristotle did it was thanks to the irreversible transformation of free energy into latent energy from ancient Greek times to the dawn of Enlightenment. Going back in technology is going back in knowledge. It is not possible without decline and drift toward extinction. What Georgescu-Roegen did not say (to the best of my knowledge) is that, in order to fend for its longevity, humanity must maximize efforts to break out from its terrestrial cradle.

In addition to orthodox economics, established social philosophy, historiography, sociology, and political science will also resist the new paradigm. The recognition that cultural history is a unidirectional, irreversible thermodynamic unfolding (i.e., material in nature) promises to generate new (socio-physical) ideas about world history. The notion “meta-narrative,” which was badly mauled by the "Messieurs" largely responsible for creating the postmodern state of mind (i.e., a celebration of unmitigated chaos) in the closing decades of the 20th century, will be back with new credentials and an urgent message of pragmatic interest for the world. (See, "Rethinking the World" by poster.)

The suggested paradigm adds a provocative new perspective on climate change. The accumulation of matter-specific entropy in the terrestrial sphere is accompanied by the seemingly unrelated process of growing information entropy. The declining sum of free energy enclosed in terrestrial matter (all the environmental problems we have discovered, with more on the way) is linked to the diminishing possibility for the human observer to know where individual molecules and atoms are and what they are up to. Despite increasing knowledge and improvements in technology, the world is more and more confused about its physical context. The uncanny vagueness and forgetfulness that currently separates belief in scientifically demonstrated ecological disintegration from resolve to act decisively may indeed be characterized as confusion. Niels Bohr remarked that quantum theory is a full theory of nature. The situation of Leviathan (if we regard it as a single intellect) examining its ecological niche is, in a way, comparable to that of a nuclear scientist who must set the subatomic world on “fire” (Bertold Brecht’s metaphor) in order to examine it. The consequence for both the individual and the abstract, collective scientist is uncertainty. The major difference is that it brings growing dangers for the second one.

In a few decades, “this side” and “the other side” of the dispute over global warming (stalemated in the murky no-man’s land between belief and inaction) may well turn out to be an untenable dichotomy. Accumulating information entropy transforms the environment into a growing conundrum, the capricious producer of novelties. Other variables (at present unsuspected or half-ignored) will split both sides into sub-camps that will verbally attack one another through highlighting this and that aspect of scientific knowledge. In the best tradition of trying to stop a ballroom brawl in full swing, the one who interferes (the representative of the new paradigm) is likely to draw the ire of both parties to the fracas.

Do not Count on Winning by Trump Arguments
In the maze of theoretical interactions among energy, heat, and work; amidst the nearly free reign given to speculative pursuits in quantum physics, many ways may be found to disprove that matter-specific entropy is irreversibly increasing in the terrestrial sphere. Looking for a decisive theoretical argument to usher in the era of global consciousness about the accumulation of entropy as a cost of expanding civilization appears to be well-nigh hopeless. Instead, we should try to punctuate the stalemate of inconclusive intra-scientific negotiations by making a “leap of faith” (concept made famous by Soren Kierkegaard) to what is intuitively logical and ethically correct.

Mandatory loss of structure beyond reprieve may be grasped by seeing energy transformation in all interactions among material substances. By dividing the interaction between passive and active matter (a division quite natural in most techniques where machines shape and mold raw or intermediary materials), we can recognize the experientially unfailing inevitability of waste, a well-known face of the second law. Just as energy cannot be transformed without waste, matter (recalculated as energy by a constant coefficient) must endure the same fate. And we must keep in mind that interaction implies mutuality. Raw and intermediary materials also play a passive role. They transform the machine from one level of free energy enclosed in its substances to a lower free-energy-containing (post-depreciation) level. Energy, of course, is not lost. Only some of it, originally in an accessible (free) form, became inaccessible (latent). Strictly speaking, interactions among material substances do not increase matter-denominated entropy; they simply cannot decrease it. This qualification is a reminder that for the human observer, the entropy law is deterministic only in direction. It remains stochastic in manifestation.

Arguments for the accumulation of entropy in the terrestrial sphere beyond the ability of solar energy to mitigate are logical at a sufficiently deep level of scientific and instinctual discernment to create firm convictions. However, they will be insufficient to ward off denigration and infuscation by blind optimism and eager adaptiveness. Stock rebuttals from institutionally mass-produced philosophical zombies will rain down on the new paradigm. Nevertheless, espousing the image of the human community being locked in a thermodynamically closed space -- even if this remains in the eyes of many a purely normative (i.e., “value laden”) and heuristic principle -- moves thinking in the same direction as global society hopefully will -- toward light and freedom through self-awareness and cohesion. Ultimately, the fitter idea survives the test of the environment, which in the current case, includes (if it is not mainly restricted to) humanity’s long-term evolutionary potential as it is realized through gene-culture co-evolution. (Sociobiologists C.J. Lumsden and E.O. Wilson developed the theory of gene-culture co-evolution.)

The clout of the new paradigm would grow incomparably faster and in more certain ways if ecological economics made good on its self-characterization as a transdiciplinary field of inquiry.

Building a Modern Arsenal through Transdisciplinary General Equilibrium Modeling
Computable General Equilibrium (CGE) models are designed to test the consequences of policy measures and other developments in the context of fundamental identities, a variety of functional relations (including optimizing algorithms), and a multitude of statistical data and estimated parameters. CGE models include many sectors and produce detailed results. Progress inherent in contributions by generations of leading economic scholars made it possible for government organizations and academic institutions to have this capability at their finger tips. Interest in designing, improving, and using CGE models shows no sign of abating. Many academics dedicate their entire professional careers to theoretical and data issues involved in CGE modeling. Eminent economists are engaged in pioneering work to read the consequences of depleting nonrenewable energy and material resources as well as environmental sinks. However, multidisciplinary cooperation, scale, and official and public recognition are still missing.

Teams comprising economists, geologists, physicists, biologists, computer programmers and IT specialists would have to be formed in order to build global CGE models featuring various assumptions about planetary carrying capacity in terms of population and world output. Results obtained by using such models would have to be communicated to governments, the United Nations and its relevant charter organizations, and to the public at large. This is, of course, too much, too soon to hope for. Nonetheless, it would be beneficial for ecological economists to begin developing their own multidisciplinary CGE culture. This may be a modest but vital step toward making the world conscious that the economics of sustainability is central to human survival.

Will this step be made in the foreseeable future? We shall see!


Two thoughts:
Mr. Pogany, get a blog.
Second, and closer to on-topic.
Certain activities may appear to be science, because they use the tools of science i.e. maths.
Oddly enough, two of these activities are topics on this blog (and mine).
On a related note, Henk Tennekes referred to meteorology as the first of the Post-Newtonian sciences in his 1986 AMS speech.

Peter Pogany

A caricature in the lighthearted spirit and general good will of the season.

Dear Santa, Bring more oil! Substitutes too! Urgent!

Never mind temporary respites and unreasonable spikes; disregard daily oscillations and monthly vacillations! If you string a line through annual data you will see that the upward barreling price trend defies all odds of being random and suggests the presence of secular causative forces. We need your old “supply and demand magic” this Christmas more than ever before. You know that spirit-raising, table-turning abracadabra that goes like “As oil supplies become short, the world price of oil rises. Then, exploiting nonconventional sites and drawing on renewable energy sources and substitutes for materials derived from oil (uneconomical before price rises) become profitable, alternative technologies develop, and -- bingo! We have artificial gasoline (recycled carbon dioxide), hydrogen, corn-based ethanol, dymethil ether (DME, obtained from biomass and coal), benzol (coal gas extract), bio-butanol, and coal-tar-derived naphthalene to run the increasing number of cars, most of which will be reduced-weight hybrids -- so efficient, so incredibly efficient (I get goose bumps every time I connect the infinite wisdom of the marketplace with the limitless ingenuity of integrated technologies); electrical cars propelled ultimately by solar, wind, geothermal, and hydro energy -- sewage and manure turned into voltage. We’ll have plant-based materials to replace plastic derived from oil and natural gas. We’ll have everything, everything…”

You have already brought these things during Christmases past, but we need more, much more to reduce our dependence on easily accessible oil while creating a world where there are only the wealthy and the wealthier. We have a long way to go but our enthusiasm is intact. You should hear my car salesman friend exclaim when he looks at the world atlas: “Wow! Billions and billions of people without cars! What a market!” The Chinese adopted Dinah Shore’s almost forgotten Chevy song. Loudspeakers holler it across the Middle Kingdom: “See our old Hu-Pei in a new Rong Wei, car dealer comrades telling you to call…”

In just two decades or so, the worldwide number of automobiles will rise from roughly 900 million to 1.2 billion.

We have been good. The virtuous circle is on. Rising prices led to reserve appreciation and increased valuation in the books of oil companies. Although private initiative could use more tax breaks and subsidies to catalyze substitution, the government’s dead hand, always ready to suffocate the creative genius of market forces, has been restricted to an extent politically possible. Yet, investment into nonconventional oil production is not forthcoming as much as one would expect. Renewable energy generation and agro-based material production are not gaining weight. As a slice of the world economy, these activities together grow just enough to keep pace with the growth of the entire pie.

Despite your generous gifts of scientific, technological, and commercial successes, we are depleting our known reserves fast and need to start exploiting new ones. I know that they are practically everywhere. Leading universities with generous endowments say that there are trillions and trillions of barrels of oil in tar sand and shale (also under the Rocky Mountains); that there are untold riches at the North Pole (in your general neighborhood), in the Gulf of Mexico, the South China Sea, and off the shores of Africa and South America. With and through your help of bounty-producing insight, we can, we must, tap into these reserves. And soon, very soon! Or else, projections for spreading the joy of happy motoring and for exponential growth in the array of uncountable super-modern consumer goodies will go sour and we will be the laughingstock of doomsayers. You know the type that’s keep talking about “peak oil,” disparages substitutes for fossil fuels (“They use up more energy than they provide”), and considers bio-fuels a health hazard. While some of these individuals simply do not have enough faith in you, others are becoming outright sarcastic and say things like “It may be true that Santa’s sleeves hide his hands but we can see quite clearly how big his stomach is and how thick that shiny belt is.”

Don’t worry! We snap at them with our towels bearing your haloed monogram (SC – Smithian Competition). Whenever they come with their charts and analyses to show big trouble ahead with oil we respond with references to the sun that will shine brightly upon us for billions of years and high-five loudly over “Just get prices right.” We expose their ignorance by telling them about things that have not even been discovered or simply hum that evergreen Viennese economic melody “Everything is Equal on the Margin.” Thanks to you, peak oil -- if there is such a thing at all (a great allowance that we make in the name of academic freedom to doubters of permanently expanding limits to growth) -- then it is not only beyond the horizon of our children’s children but whenever it is reached, in a hundred years, it will be an unnoticed milestone on the ever widening turnpike of eternal economic expansion.

Here I must pause and confess something that I would not discuss in public or mention even to my colleagues, particularly not to my superiors at the Institute. I begin to feel fear. Such terribly steep increases in oil prices without an end in sight to their fundamental cause -- swelling global excess demand -- appears to be locking our system into “lose-lose,” self-destructive choices. We want as much free competition as possible but if private capital is forced to absorb oil price-hikes, almost all consolidations and mergers would have to be authorized to avoid bankruptcies and layoffs. We would be forced to reduce the potency of market forces -- the very source of our expected salvation. Joint curtailment of competition and purchasing power in the wake of general, oil-triggered cost-push inflation would mean that we are stuck on high seas -- sails in tatters, no wind. Not only would macropolicies be unhelpful, they might even be harmful. Both fiscal and monetary measures traditionally used to stimulate economic growth are turning sour. Further monetary easing (i.e., increasing the mass of dollars now sloshing around in threateningly convulsive, toxic financial waters) or deficit spending (either by government programs or tax cuts) would only aggravate conditions, imperiling the dynamic stability the world economy currently enjoys. (Those nasty heterodox economists call the current situation “stable disequilibrium.” Don’t even think about going down their chimneys!)

It bothers me (and this should also remain between us) that my academic superiors at the Institute (where daring skiers sliding down rugged slopes of the Austrian Alps decorate walls), so knowledgeable about the game-theoretical implications of optimal design mechanisms and double auctions as they reflect the incentive compatibility of choice from among multiple equilibria in non-contradiction to the allocative superiority of Smithian Competition, seem unable to grasp the possibility of serious negative developments because of “peak oil.” They make inappropriate historical comparisons; beat up the weakest arguments about the unfolding global crisis, and erroneously single out and isolate the U.S. economy to show how little oil price increases matter.

It seems to me that the current galloping industrialization in much of the developing world against the backdrop of accelerating depletion of conventional oil reserves is a new situation. Using more and more of what we have less and less of cannot be talked away by references to earlier points or stages of this process without self-deception.

Much research talent and effort is being consumed to prove that disruption in global oil supplies on the scale recorded during the closing three decades of the 20thcentury would not, by itself, necessarily cause a recession in the U.S. economy. Is this really the point that requires ever more sophisticated and detailed elaboration? Is this the right framework to analyze the planet’s mounting energy problem?

Citing the American economy as an example of increasing invulnerability to oil market developments would be innocently parochial were the proponents of such arguments not among the most fervent believers of globalization-brought interdependencies. Much of the oil the United States no longer needs directly for its predominantly service-oriented economy is used up indirectly in the form of imported manufactures, e.g. from China where oil demand rose by roughly 45 percent since 2001. Do my esteemed academic superiors forget that oil trade is mainly dollar-denominated, allowing the primary source of international liquidity to cover its foreign oil purchases without earning someone else’s currency? (If the U.S. economy had to maintain a large export sector in order to pay its import bills, it would need much more oil than it currently does.) How can anyone overlook the obvious fact that the developing world -- four-fifths of the planet’s population -- cannot leap-frog around massive (heavily oil-dependent) industrialization to raise its level of living to that enjoyed in “little share of oil expenditure in the GDP,” post-industrial, knowledge economies? How could the United States, sinking into ever deeper financial debt to the rest of the world, while playing unique and pivotal roles on the stage of world history, be used as an imitable example, representing generally reachable conditions? And given the high and growing level of interdependence that globalization brought, how can anyone imagine that the consequences of aggregate excess demand for oil reaching a critical point would not engulf the U.S. economy?

Yes, using transformation in highly developed economies toward services and high-tech activities as their trump argument, economists at the Institute insist that the world is headed toward growing invulnerability to oil supply problems. Contrary reasoning shall be prosecuted to the full extent of econometric know-how. (Some disagreeable heterodox economists say that econometrics has an unconstrained ability to deconstruct causality-based macroeconomic arguments. They call “big issue” econometrics a dangerous toy that should be recalled. They characterize us at the Institute as autistic, inorganic intellectuals, heirs to Professor Pangloss who damage the creative faculties of Candides captured in their classrooms while boring them to death. They call us neoclassically programmed philosophical zombies. Come Christmas morning, they deserve to find their stockings empty.)

Still (pst, just between the two of us), it irks me that my august scholarly community labels recent increases in oil prices “speculative.” A rise in oil prices as a result of dollar depreciation is “speculative;” the supply (and related price) policies of state oil companies (like those of Russia, Venezuela and sinister Iran) are “speculative,” and regional tensions with supply-disruptive potential are also “speculative.” It seems to me that dollar depreciation is symptomatic of global monetary-financial troubles: Diversifying strategic supplier behavior, away from the cooperative and responsible conduct of petro-monarchies, and intensifying strong-arm struggle for oil revenues follow as directly and logically from diminishing-reserve-given clout as night follows day.

I fear that unless the world soon increases the supply of oil and substitutes on a scale that addresses the central problem of growing asymmetry between global (i.e., not only U.S. or OECD) oil demand and supply, something big, unexpected, and ugly will happen. Looking at our current options, I still come to the conclusion that only you can help, dear S.C., begetter of wondrous things.

We address ourselves not to humanity but to you. Without any complaint or even a mention of our dire needs, we just simply want to remind private entrepreneurship of its lucrative opportunities and remove all obstacles from its creative genius and unstoppable driving force.

Thank you.
Your fervent believer,
Johnny von Schonzeit
Tenure-track Assistant Professor of Rational Exchange Quantification and Behavioral Systems, Associate at the Neo-Ostmark School of Advanced Economic Studies

PS. Please do not bring oil from the Arctic Circle. Intentions to get the stuff from up there are already at fever pitch. As a matter of fact, a bunch of rough and ready skaters are circling each other with hockey sticks raised menacingly high, each claiming the privilege to bring the bounty to market.


My dear son,

Your mother (whom everyone calls Mother Nature these days) and I have been postponing the day when we had to tell you that there is no Santa Claus. Or better to say, there is one -- myself, hardly an almighty quasi-saint. You have passed 40 now and you ought to know that I have been receiving your letters all these years and dressing up for the part to bring you joy. Your mother and I could satisfy all your requests until now, but your last letter changed everything. I simply cannot bring you all the substitutes you need. They demand so much conventional oil that we are talking about substituting conventional oil by a different name for the same. (Excuse the hyperbole -- I just wanted to drive home the overwhelming, but still largely unrecognized general difficulty of substitution -- its insatiable demand for oil.) And, while we are on the subject of driving, your mother informs me that if all those cars you mention in your letter are made, the expression “car bomb” will have a new and even more ominous meaning than the one we know from CNN. The only thing worse than fulfilling plans for worldwide automobile production -- your mother insists -- is to drill a hole to the center of the Earth, put down explosives and light the fuse.

Try to move to the next level, son!

Hard core Institute members (with whom you evidently have a love-hate relationship) cannot appreciate the magnitude of the problem the world faces until they stop equating fundamentals in economics with axioms of Euclidean geometry. Somehow you all must get it through your heads that behavior and expectations tied to the guiding principle (“pre-analytic vision”) of “satisfying infinite needs” are approaching -- if they are not already in full collision with -- nonexpendable material and ecological limits. Infinite expansion in a materially closed space is physically impossible. The terrestrial sphere contains a lump sum of free energy enclosed in matter and, for all economic intents and purposes, the inventory of atoms constituting this matter is fixed. Thinking that free (accessible) energy can be maintained by increasing human knowledge is tantamount to the claim of having discovered a perpetual motion machine -- the source of boisterous merriment in patent offices around the world. Cultural evolution centering on economic growth is strictly a one-way process and “oil” is shaping up as humanity’s first (and hopefully conclusive) lesson about this unchangeable reality of its existence.

I see, of course, the source of your error. Given the practically unlimited availability of solar radiation and Einstein’s famous discovery concerning the equivalence of mass (matter) and energy, resources appear to be unlimited. It seems that eternal progress in science and technology, i.e., accumulated information, can support economic expansion on this planet ad infinitum. Incorrect! Once we ingurgitate easily accessible free energy contained in fossilized plants and animal bones we will need increasing amounts of useful matter to access energy enclosed in other structures. Your colleagues ought to be worried about the damage their light-hearted view about “peak oil” inflicts on the human prospect. Leger de main treatment of this issue is even less acceptable now, when new energy-swallowing black holes have opened up where China and India (home for about one-third of humanity) used to be.

Please try to understand that an irreconcilable double demand exists for global oil. While micro-incentives at the private corporate, business firm level simply cannot do without continued increases in oil consumption, transition into a significantly less oil dependent world wants to take oil away from this process. And government can neither override existing market incentives nor can it safeguard them, arranging for smooth transition while children sleep peacefully, smiling in their dreams. To put it crudely, it might look like a simple task to chew bubble gum and walk at the same time but a person either without legs or teeth cannot do it. The situation at hand is, of course, quite a bit more subtle and deceptive. The world has legs and teeth but its motor coordination has not evolved to measure up to the task. (You see, we are talking about evolution, not just minor repair work or curing some impairment.)

The solution to any economic problem is possible only if macro-policies and micro-incentives can be synthesized fruitfully. Although macro-policies and micro-incentives do form a certain union when it comes to reducing dependence on oil, it is a barren one. These two key factors are currently only flirting and patting. You are now old enough to know that this is wholly insufficient. The two parties will need to interpenetrate each other in significant and coordinated ways to conceive a solution. (You must, of course, continue to believe in miracles -- it is good for your mental health and moral composure.) Ground-level material reality is that the “greening” of global industrial infrastructure without serious and extended birth pangs appears to be impossible. Calamities will either be forced on society by public authority or they will occur spontaneously as a result of the world economy’s run-in with the guard rail. This second scenario is more likely because neither the public at large nor private business is inclined to mutilate its immediate interests voluntarily. Therefore, we must prepare for a collision between economic ambitions and their physical limits. I hope that it will be benign, just enough to sober the world -- not less and not more. (Indeed, what the world needs now is a collision of optimal inelasticity with the first roadblock of its material constraints.)

You may not see now why your problem cannot be solved using only my “Invisible Hand,” as you call it. To comprehend the situation conclusively and enduringly -- among many other, now unimaginable developments -- you will have to see gas stations boarded up; the mind-boggling variety of plastic toothbrush holders, bobble-head dolls, hula dancing figurines, hand-crafted dog paw stamps, tomato car-shaped teapots (made just for you with so much love and care by the Barrack-24 Production Brigade of Nan-king Knick-Knacks Unlimited, and shipped to a store near you by turning untold amounts of refined oil products into poisonous fumes and bubbling hemlock) will have to disappear from the shelves. Deep and common understanding of the global oil predicament will have to wait until poor countries no longer sell new watches at prices way below what it would cost to repair them in the rich ones; until the poor, yet frantically industrializing world no longer sells bed comforters cheaper than what it costs to dry-clean them in Paris, New York, and Tokyo. And believe me, we, here on the sunny side of the great development divide are not the only ones slated for a rude awakening. One of these days, the export bootstrap some developing countries use to pull themselves up will remain in their hands. All these seemingly unrelated symptoms -- headaches, dizziness, and shortness of breath -- may be explained by the global economy finding itself on that stark and dangerous temporal plateau called “peak oil.”

The current global economic order (decentralized market incentives cum weak multilateralism as realized through the United Nations and its charter organizations) cannot guide the world to a predominantly renewable resource-based economy without undermining its own stability.

Remember that old Jim Steinman song?

"I would do anything for love
Anything you've been dreaming of
But I just won't do that"

If our global order could sing, its lyrics would convey the following message:

"I would do anything for profit
Anything you've been dreaming of
But I just won’t do transition to a renewable resource base"

It could very well add “I won’t because I don’t go voluntarily to my death.” Transition is conditioned on the stagnation if not on the contraction of our luxury-oriented market civilization. And drastic structural shifts implicit in the required transition cannot be smooth. The current system simply cannot coordinate shutdowns of nonrenewable resource-based activities with the activation of new, renewable resource-based capacities. Already economic-growth-preserving substitution of nonconventional for conventional oil is faltering on narrow business incentives and resource nationalism. And this is not even the bulk of humanity’s historic task of transforming its resource base.

Was that highly gifted and spirited New York Times European correspondent, Karl Marx, ever wrong! He thought that capitalism would come to an end because it limits growth. Just the opposite seems to be the case. The greatest danger to free market economy is that it must continue to grow at breakneck speed to survive. And as it grows, it becomes physically more dependent on oil.

This deepening contingency in the context of our many-faceted and continually differentiating global interconnectedness has a novelty-producing, symmetry-breaking quality. The past remains prologue, of course, but it is no longer the usual, half-way reliable guide to the future. Not only does the passage of time make the world increasingly vulnerable to insane terror acts aimed at economic disruption, but it also elevates risks entailed by the interplay of unfavorable developments. Global society’s voracious appetite for physically unsustainable expansion, its increasingly brazen use of sharp elbows to secure access to scarcer resources (particularly oil), and growing precariousness in its single-currency-based (mono-polar) monetary-financial order together have heightened “sensitive dependence on initial conditions” -- the touch-and-go proclivity of a system to magnify relatively small, totally unpredictable events into big trouble for all of us. I have butterflies in my stomach.

Orthodox economism (with its ecology-indifference, narrow, market-historical focus, and institutional naïveté) has become irrelevant to analyzing the world’s energy crisis. The belief of leading academic authorities that a secular rise in the dearness of oil might just cause a U.S. recession is as charmingly ingenuous as expecting a six month suspension of one’s library card as punishment for bank robbery. Hiding the ominous significance of rising global oil throughput (from depleting sources into chockfull environmental sinks) behind single-digit shares of oil among aggregate expenditures in highly developed economies qualifies as self-hypnosis. Why the sharpest intellects (on this side of the French Revolution’s guillotine) fail to recognize that such numbers are low because they turned physical reality on its head is a phenomenon that ought to be analyzed by social psychologists, psycho-linguists, or political scientists with a bent to cultural anthropology. Anyway, if you define heterodoxy as being open to new ideas in dealing with never-before-seen situations, I must confess to you . . .

But enough! The days of traditional rejoicing are upon us. Why upset you even more? You will be profoundly challenged -- no doubt -- but you will come out ahead. Hope over dread, old boy! So, just like in those past times of your lengthy childhood:

Merry Christmas, ho, ho, ho!

The comments to this entry are closed.

Want Email Updates?

Your email address:

Powered by FeedBlitz


  • This is a personal web site, reflecting only the opinions of its authors. It was built and is manitained in occasional spare moments. Statements on this site do not represent the views or policies of anyone other than the person offering up the views.


  • Our Ecological Economics web-log is designed to daylight and refine economists’ and ecologists' views, agreements, and disagreements on current environmental and natural resource issues. We also hope this blog will help ecological economics ideas gain traction in social and political discussion and policy making.


Ocassonal Contributors

Would-Be Contributors

Strategic Thinking Blogs

Blog powered by Typepad