Open Thread: What would Zero or Negative-Growth Capitalism look like?

by Tristan on October 12, 2010

in Economics

If we acknowledge that the world is approaching an apocalyptic zero point, where capital accumulation has become more and more so many bad loans or scraps of paper being traded back and forth – it is time to seriously rethink capitalism. There are many alternatives, but one which we might consider is the idea of a capitalism where growth no longer exists. What would this look like?

It seems to me that one way of having a zero or negative growth economy where investment still allocated capital efficiently would be to set inflation quite high. This would encourage investment (since holding onto money would not increase its value), and if the inflation rate were set above the mean rate of return on investment, the growth rate could remain negative without stopping investment. Investors would all be willing to lose money on accumulated capital – since this would be better than losing even more through inflation.

However, I think this would create problems of commodity-hoarding. Rather than hoard money, one could simply hoard beans or gold. The commodity, if the demand were stable enough, would return up to a 0% net growth rate – better than investing could do.

For this reason, a no-growth yet healthy capitalist economy seems implausible – but I’m open to suggestions!

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{ 72 comments… read them below or add one }

Milan October 12, 2010 at 11:03 pm

It is important to be clear about what the ‘zero’ refers to.

The important thing isn’t stopping GDP or human welfare from growing. Rather, it is to re-form the economy so that it can keep running forever. That requires altering consumption patterns so that all important resources are being exploited sustainably, and it requires managing waste so they don’t cause ever-increasing problems (like climate change).

At the moment, no environmental problem looks remotely as serious as climate change does. Given that, why not just work to impose a system of hard caps with auctioning and let GDP do whatever it does in response?

Tristan October 12, 2010 at 11:18 pm

Milan,

You are right that “zero” could refer to different things. I’m using it to refer to net growth of the economy. This really means something – for one it would mean that if productivity went up, labour would correspondingly decrease. It would mean that capitalism could continue to allocate capital efficiently even as the availability of new markets and new resources wanes.

However, for reasons I give above, it seems implausible.

Consumption is always equal to production if we count waste production as consumption (and, since it goes in the dump, we probably should). We should therefore talk about the need to reform production patterns – (including the production of desire, but that’s an analogous form of production).

Working towards imposing hard caps with auctioning is a good idea in theory, but in practice all the incentives are set up to cheat. And, all the lobby groups will be in favour of cheating. And the leader who allows more cheating will be elected. But that said – that is given the current political system. Perhaps the system could be reformed to the point where these auctions could be put in place. But – that seems doubtful, since for that to happen the political power associated with capital would have to be removed from the buyers at these auctions, without taking away their ability to control capital and buy the credits at auction.

However – this is getting away from the original post: what would a zero-growth economy look like within a capitalist framework? How can capitalism continue to efficiently allot capital as growth reaches its limits? And – we should recognize that if any growth that has already happened has required significant carbon emissions, it was false growth.

Tristan October 13, 2010 at 12:16 am

The problem I see with the idea of hard caps on their own, is if the nominal growth rate (not the real growth rate) drops to zero or below, capitalism can’t allot capital anymore at all. With deflation and a declining market, no one (on average) invests. That’s not good for anyone.

Perhaps some combination of hard caps and high inflation could keep nominal growth at a good rate while real growth fluctuated as the situation allows.

Milan October 13, 2010 at 9:39 am

First, and most important, the costs expected to be associated with climate change mitigation are small. So small, in fact, that some people suspect we wouldn’t even notice them being applied.

Admittedly, the Stern and Garnaut Reviews do assume that climate policies are applied in a sensible way, like an economy-wide carbon price. Achieving reductions via more inefficient routes – like subsidizing renewable energy – would raise total costs. That said, it doesn’t seem that there is any reason to assume that it would raise costs so much as to preclude economic growth.

Secondly, it is odd that you think a hard cap is impossible because people will cheat, but you think zero net economic growth is somehow more politically possible. Telling people they can keep growing as long as emissions are falling at the right rate is one thing. Telling them that their relative and absolute standard of living may stagnate or fall is likely to produce far more resistance and hostility.

Milan October 13, 2010 at 9:40 am

Even Bjorn Lomborg – who has generally argued that stopping climate change isn’t worth the money – also says that: “there is no way that the cost [of stabilizing abatement measures] will send us to the poorhouse.”

Tristan October 13, 2010 at 11:06 am

“Telling them that their relative and absolute standard of living may stagnate or fall is likely to produce far more resistance and hostility.”

Redistribution can raise almost everyone’s standard of living while reducing total wealth. That’s why you need an analysis of inequality.

As for telling people growth must drop to zero – I don’t mean anything of the sort, but perhaps I was not clear. I mean, how can a federal reserve manage capitalism so that it doesn’t go into cataclysms as the growth rate drops (that is – if the growth rate drops). And, it is not sensible to believe that compound growth is possible for ever. So, even climate change aside, we need to settle on a way for capitalism to continue to efficiently redistribute capital in a world where net growth will eventually drop to zero.

It is of course possible that net-growth has been zero for some time if we take externalities into account. The argument that we should not continue business as usual emissions due to the costs of emitting carbon is equivalent to saying business as usual growth is at least partially false.

. October 13, 2010 at 11:10 am

Jeff Sachs @ Columbia U/Denmark Consul climate conf: we’re gambling survival, the planet 4 just 1% of GDP! Why Bad corps/indiv funding lies.

Milan October 13, 2010 at 11:16 am

And, it is not sensible to believe that compound growth is possible for ever. So, even climate change aside, we need to settle on a way for capitalism to continue to efficiently redistribute capital in a world where net growth will eventually drop to zero.

Growth in human welfare can continue to compound forever. The biophysical impact that humanity can safely impose on the planet is finite, but there is no limit to how far technology can advance and how much human welfare we can derive within those physical limits.

In any case, the most comprehensive analyses of the cost of climate change have determined that the cost of dealing with it is nowhere near as high as it would have to be to stop economic growth. There are those who want to use climate change as an excuse to implement radical political and economic reforms, but it is quite possible that neither is necessary. Furthermore, pushing for them when they are not needed reduces our chances of success, and increases the risk of catastrophic or runaway climate change – both of which are much worse than rising income inequality.

Tristan October 13, 2010 at 11:19 am

Well, one thing we’ve learned about economics is “it’s all about the margin”. But here, maybe we are seeing the forest instead of the last tree. As a whole 1% of GDP does not look like a lot. But, since CEO success is tied to that last ounce of performance (and since carbon legislation will shake up the economy – move clout around a little bit), that 1% is perversely valuable to those who are in a position to stop action on climate change.

If it is true that climate change mitigation is being blocked by marginal financial interests, I think we should agree that the power of capital on the margin has grown too strong. And the responses are simple – reduce the power of capital, and increase the power of those with the ability to make long term choices.

Milan October 13, 2010 at 11:23 am

Even though dealing with climate change will likely only cost 1-5% of GDP if we start soon enough, there will certainly be those who will fight tooth and nail to prevent action.

That doesn’t mean – however – that we need to be planning for a world of zero or negative GDP growth. From what we know now, the smart money is on climate change being economically feasible to deal with, though politically difficult to really get started on.

Suggesting that a zero-carbon economy is also a zero-growth economy seems misleading, and likely to encourage the failure of efforts to address climate change.

Milan October 13, 2010 at 11:24 am

Also, once we do really get going on dealing with climate change, we are going to need to harness “the power of capital”. Gigantic concentrating solar facilities and advanced grids for renewable energy will require the kind of funding and expertise that have accompanied major projects in the past.

Banks and financial institutions will be a big part of that.

Tristan October 13, 2010 at 11:25 am

“Growth in human welfare can continue to compound forever.”

Who said compound capital growth is growth in “human welfare”? Human welfare indexes in the US have been stable or on the decline for the last 40 years as wealth has been undergoing compound growth.

I actually agree that growth in human welfare is eminently possible – mostly through the redistribution of wealth. Inequality is, I think, the largest cause of suffering today.

As for compound growth – I mean net growth of the economy. The economy can not grow at a compound rate forever – that’s infinity. Also, the real rate of growth increases over time if the compound rate remains the same. In other words, an economy growing at 3% steadily grows more next year than this year, more the year after, etc… simply because the amount over which the growth is compounded is increasing.

If you actually look at what historical and political strategies have been undertaken to maintain capital accumulation since the 70s, it’s quite clear that it can not go on forever, at least in the neo-liberal mode. The utopian claims you make about the saving power of technology are not necessarily false, but they speak a total lack of analysis in the history and current state of political economy. They are certainly false within our current world economic paradigm.

Tristan October 13, 2010 at 11:28 am

“Also, once we do really get going on dealing with climate change, we are going to need to harness “the power of capital”. Gigantic concentrating solar facilities and advanced grids for renewable energy will require the kind of funding and expertise that have accompanied major projects in the past.

Banks and financial institutions will be a big part of that.”

By “The power of capital” I mean the power which controlling capital gives you in the political sphere. It’s what Rawls thinks shouldn’t exist if a democracy is going to meet the conditions of justice.

What you mean here seems more like the power of industry, the productive power which controlling power gives you. And it’s trivially true that this is required – but it’s also trivially true that this power exists no matter who controls it. Why can’t the workers control what gets made in the factories? Why can’t the state decide? Why does it need to be banks? And why do banks need to profit off other people’s money – because they are the most efficient capital allocators? Ok – well you need to make sure you have a way to make that true. And, it’s not at all obvious that banks have efficiently allocated capital from a perspective of human welfare ever, let alone in the last 30 years.

. October 13, 2010 at 11:29 am

“The evidence shows that ignoring climate change will eventually damage economic growth. Our actions over the coming few decades could create risks of major disruption to economic and social activity, later in this century and in the next, on a scale similar to those associated with the great wars and the economic depression of the first half of the 20th century. And it will be difficult or impossible to reverse these changes. Tackling climate change is the pro-growth strategy for the longer term, and it can be done in a way that does not cap the aspirations for growth of rich or poor countries. The earlier effective action is taken, the less costly it will be.”

Executive Summary, Stern Review on the Economics of Climate Change

Tristan October 13, 2010 at 11:31 am

“Also, once we do really get going on dealing with climate change”

There is still no convincing story about how we get from impotent governments controlled by interests which don’t care about the survival of the species, to this “really get going” stage.

I’m beginning to think CJM is right – if we prevent all fossil fuels from being burnt, it will be due to struggles over the land from which they are extracted, which are led by people who have from their residency and lived connection a moral authority over that land.

I’m also beginning to think that if, in 5 or 10 years, there is still no convincing scaling back of extraction of fossil fuels, much of the world will begin looking like the middle east or Northern Ireland.

. October 13, 2010 at 11:34 am

“Australian standards [of living] are likely to grow strongly through the 21st century, with or without mitigation, and whether 450 or 550 ppm is the mitigation goal. Botched domestic and international mitigation policies are a risk.

Substantial decarbonisation by 2050 to meet either the 450 or 550 obligation is feasible. It will go fastest in the electricity sector, then transport, with agriculture being difficult unless, as is possible, there are transformative developments in biosequestration.

There is considerable technological upside. This could leave Australian energy costs relatively low, so that it remains a competitive location for metals processing.”

Garnaut Climate Change Review, Chapter 23: Towards a low-emissions economy

. October 13, 2010 at 11:36 am

“According to a literature assessment by Barker et al.. (2007:622), mitigation cost estimates depend critically on the baseline (in this case, a reference scenario that the alternative scenario is compared with), the way costs are modelled, and assumptions about future government policy. Fisher et al.. (2007) estimated macroeconomic costs in 2030 for multi-gas mitigation (reducing emissions of carbon dioxide and other GHGs, such as methane) as between a 3% decrease in global GDP to a small increase, relative to baseline. This was for an emissions pathway consistent with atmospheric stabilization of GHGs between 445 and 710 ppm CO2-eq. In 2050, the estimated costs for stabilization between 710 and 445 ppm CO2-eq ranged between a 1% gain to a 5.5% decrease in global GDP, relative to baseline. These cost estimates were supported by a moderate amount of evidence and much agreement in the literature (IPCC, 2007b:11,18).

Macroeconomic cost estimates made by Fisher et al.. (2007:204) were mostly based on models that assumed transparent markets, no transaction costs, and perfect implementation of cost-effective policy measures across all regions throughout the 21st century. According to Fisher et al.. (2007), relaxation of some or all these assumptions would lead to an appreciable increase in cost estimates. On the other hand, IPCC (2007b:8) noted that cost estimates could be reduced by allowing for accelerated technological learning, or the possible use of carbon tax/emission permit revenues to reform national tax systems.

In most of the assessed studies, costs rose for increasingly stringent stabilization targets. In scenarios that had high baseline emissions, mitigation costs were generally higher for comparable stabilization targets. In scenarios with low emissions baselines, mitigation costs were generally lower for comparable stabilization targets.”

Tristan October 13, 2010 at 11:39 am

What migrations are foreseen as a result of even 2 degrees of climate change? How will that be a force of instability in a highly rigid, imperial world?

“A billion people – one in seven people on Earth today – could be forced to leave their homes over the next 50 years as the effects of climate change worsen an already serious migration crisis, a new report from Christian Aid predicts.”

http://www.guardian.co.uk/environment/2007/may/14/climatechange.climatechangeenvironment

Milan October 13, 2010 at 11:43 am

Overcoming the political influence of those who want governments to keep doing nothing about climate change requires defeating their weak arguments while also pointing out the benefits of action.

Arguing baselessly that climate change cannot be addressed without stopping economic growth is both misleading and bad strategy.

Rather, we need to point out how dealing with climate change will be bad for some industries, but they are small and harmful ones. The people who invest in them and work for them will be able to redirect their resources over time, and we will eventually be left with a world economy based on renewable forms of energy that can be relied upon forever.

The smoking example shows that powerful industries can be defeated by good evidence and strong moral arguments. Rather than wallow in defeatism, we need to do the same thing now in relation to the global fossil fuel industry.

Tristan October 13, 2010 at 11:54 am

“Overcoming the political influence of those who want governments to keep doing nothing about climate change requires defeating their weak arguments while also pointing out the benefits of action.”

Wait – you still think politics is about arguments?

“Arguing baselessly that climate change cannot be addressed without stopping economic growth is both misleading and bad strategy.”

Did I argue this? Or did I assert it and ask people to discuss what no-growth capitalism would look like? You have yourself in the past asserted that there is nothing essential to capitalism about compound growth – I simply wanted to clarify what was meant by this in a free and open discussion. It seems to me that capitalism does require constant net growth, because otherwise hoarding would stifle the economy.

The smoking example is not at all clear – especially since smoking remains a major cost on our health system. It’s not clear that the smoking companies were defeated, and it’s not clear why they are a good analogy to the united front of business against climate change mitigation. It seems clear that business has no interest in overall growth, but rather in maintaining their existing grip on power (i.e. who happens to be in power now). Arguments have nothing to do with it.

“Rather than wallow in defeatism,”

Defeatism? Hardly. See my previous post: http://burycoal.com/blog/2010/10/12/cjm-workshop-on-landed-resistance/

Confronting power with force rather than argument is not defeatist. If “arguments” won out, America would have long ago apologized for war crimes in Vietnam.

Tristan October 13, 2010 at 11:56 am

Just on the idea of growth – do you think blowing up a bubble in the housing market constitutes growth? Did the .com bubble constitute growth? Capitalism over and over again tries to find growth and manufactures its appearance in order to make short term gains. And the consequences in the way of inefficient allocation of capital are disastrous.

. October 13, 2010 at 11:59 am

“[It would cost] around 1 percent of world GDP per annum to get below 550 ppm CO2e”

“[W]aiting will take us into territory that we can now see is probably very dangerous and from which it will be very difficult to reverse. Acting now will give us, at fairly modest cost, a cleaner world and environment, even if, as seems very improbable, the vast majority of climate scientists have got it wrong. If we conclude that whatever the merits of the argument, it is too difficult to make and implement policy, then we should at least be clear about the great magnitude of the risks of moving to concentrations of 650ppm CO2e or more, which are the likely consequences of no, weak, or delayed action.”

Stern, Nicholas. “The Economics of Climate Change.” in Gardiner, Stephen et al. eds. Climate Ethics: Essential Readings. 2010.

Milan October 13, 2010 at 12:04 pm

You have frequently argued that only major changes to the economic system would allow humanity to deal with climate change. The economists quoted above have done extensive research on what stabilizing atmospheric concentrations of greenhouse gases would cost, and they disagree with that analysis. It seems quite possible for humanity to overcome the problem of climate change without abandoning either growth or capitalism. Indeed, because of the economic damage that climate change itself would do, it is likely that people will be richer overall in a world that pursues a course of aggressive mitigation than in one where weak action (or no action) is undertaken.

We are in agreement that there are political barriers to making good climate policy. Given the history of the issue, that is beyond dispute. Nonetheless, we have strong evidence that incremental political and economic changes could allow humanity to get on top of this problem. Arguing that we should push only for radical change risks blocking the most promising path toward a successful outcome.

By all means, you can speculate on what a zero- or negative-growth economy would look like, as long as you acknowledge that the discussion has little to do with the issue of climate change as it is presently understood.

Tristan October 13, 2010 at 4:57 pm

“You have frequently argued that only major changes to the economic system would allow humanity to deal with climate change. The economists quoted above have done extensive research on what stabilizing atmospheric concentrations of greenhouse gases would cost, and they disagree with that analysis.”

I have argued that major changes to the economic system will allow humanity to deal with the impossibility of compound indefinite growth. I don’t think compound growth ends with climate change (although I do think a lot of post growth has been false due to its reliance on climate destroying emissions).

I have also argued that, in order to implement basic climate change mitigating policies, major political changes must take place. They may not appear major (existing systems may remain formally the same), but who’s interests are represented must change. At the most minimal level, the long term interest of the economy as a whole must be represented, rather than the bums who happen to have a lot to lose from climate mitigation.

Politics based on fear and PR is always subject to disasters like climate denial – a potentially small proportion of the business elite can effectively convince enough deciders to not act on an absolutely necessary problem. Climate change will not be the last universal catastrophe humanity faces, so while it must be a priority, we must also consider the possibility that universal catastrophe, and the need for some form of universal cooperation on different issues, will be required for a peaceful and prosperous human future.

For one – we should stop ignoring the migrations climate change will bring about.

Milan October 14, 2010 at 9:50 am

Climate change will not be the last universal catastrophe humanity faces

This is probably true.

That being said, the timeline for dealing with climate change is very tight. You and I will probably live to see the question decided of whether Earth will experience catastrophic (for humanity) climate change or not.

Indeed, the emissions pathway the world follows over the next ten years will largely determine whether it will be possible to keep warming below 2°C.

As you rightly point out, even a temperature increase of over 2°C will require a lot of adaptation, and smart people should be planning for that. That being said, mitigation simply must be a much higher priority right now. There will be no adapting to the kind of warming we are in the process of locking in for 2100.

Tristan October 14, 2010 at 10:00 am

I agree the timeline is tight, and I agree with a diversity of tactics. And, I agree with the critique of tactics – such as your critique of the limits of local-action due to the global impacts of CC. However, I think what your analysis underestimates is the poverty of care in modern society is not a zero-sum game – it is not that we have some capacity to care, and if we care about a land-based resistance struggle then we are taking care away from some policy advocacy pursuits. And I’m certainly guilty of that fallacious logic too when I’m overly critical of arguing for CC mitigation on economic grounds. But, I don’t think I’m wrong when I say the poverty of care, which means roughly our fear of letting the chaos in, which motivates us to turn away from beggars on the street, from the first nations residential school genocide, from the cancer in fallujah, from the US self-exception from the genocide clause, etc… – this poverty is something that hurts all struggles for justice and human survival.

Milan October 14, 2010 at 10:08 am

A lot of people seem to feel uncomfortable with the very idea that there are decisions to be made on the basis of ethics.

Civil servants – in particular – tend to view ethical questions as entirely outside the scope of their appropriate role. For them, it is much better to describe climate change mitigation as a responsible management technique, a best practice, a boost for long-term growth, etc.

That, or make entirely pragmatic arguments based on things they already assume to be good, like rising trade and GDP: “We need to implement domestic carbon pricing because our trade partners are going to and they will have a head start on us otherwise.”

. October 14, 2010 at 1:27 pm

“LOOK at the world economy as a whole, and you could be forgiven for thinking that the recovery is in pretty decent shape. This week the IMF predicted that global GDP should expand by 4.8% this year—slower than in the boom before the financial crisis, but well above the world’s underlying speed limit of around 4%. Growth above trend is exactly what you would expect in a rebound from recession.

The world would be better served by policies that both improve rich countries’ prospects and reorient growth in emerging economies. These should come in two parts. First, as this newspaper has often argued, macroeconomic policies must be recalibrated. Emerging economies need to allow their currencies to rise more. The rich should tread carefully with fiscal consolidation: sensible budget repairs should be less about short-term deficit-slashing and more about lasting fiscal reforms, from raising pension ages to trimming health-care costs.

Second, and just as important, is microeconomic reform. No matter what Congress threatens about the yuan, China’s trade surplus will not disappear until it boosts investment in services, removes distortions that depress workers’ share of income and encourages households to save less. From telecoms to insurance, China is full of service oligopolies that need to be broken up.”

Milan October 14, 2010 at 1:29 pm

I think it’s fair to say that the pro-growth perspective in the article above remains dominant within both government and the general population.

That isn’t to say that it is necessarily the right view – or that the policies endorsed are necessarily good.

Tristan October 14, 2010 at 1:49 pm

“Civil servants – in particular – tend to view ethical questions as entirely outside the scope of their appropriate role.”

Is this not a direct violation of the civil service oath?

Milan October 14, 2010 at 1:56 pm

‘Public servants loyally implement ministerial decisions, lawfully taken’

Little-picture ethics (like conflicts of interest or embezzlement) are matters of concern for the public service. Big-picture ethics (like distributive or intergenerational justice) are matters for the political system to handle.

. October 14, 2010 at 2:02 pm

Public Service Employment Act (2003, c. 22, ss. 12, 13)

PART 4
EMPLOYMENT

Oath or affirmation

54. A person appointed or deployed from outside that part of the public service to which the Commission has exclusive authority to make appointments shall take and subscribe an oath or solemn affirmation in the following form:

I, ……………….., swear (or solemnly affirm) that I will faithfully and honestly fulfil the duties that devolve on me by reason of my employment in the public service of Canada and that I will not, without due authority, disclose or make known any matter that comes to my knowledge by reason of such employment. (Add, in the case where an oath is taken, “So help me God” (or name of deity).)

. October 14, 2010 at 2:06 pm

Values and Ethics Code for the Public Service

“The democratic mission of the Public Service is to assist Ministers, under law, to serve the public interest.

Democratic Values: Helping Ministers, under law, to serve the public interest.

  • Public servants shall give honest and impartial advice and make all information relevant to a decision available to Ministers.
  • Public servants shall loyally implement ministerial decisions, lawfully taken.
  • Public servants shall support both individual and collective ministerial accountability and provide Parliament and Canadians with information on the results of their work.

Professional Values: Serving with competence, excellence, efficiency, objectivity and impartiality.

  • Public servants must work within the laws of Canada and maintain the tradition of the political neutrality of the Public Service.
  • Public servants shall endeavour to ensure the proper, effective and efficient use of public money.
  • In the Public Service, how ends are achieved should be as important as the achievements themselves.
  • Public servants should constantly renew their commitment to serve Canadians by continually improving the quality of service, by adapting to changing needs through innovation, and by improving the efficiency and effectiveness of government programs and services offered in both official languages.
  • Public servants should also strive to ensure that the value of transparency in government is upheld while respecting their duties of confidentiality under the law.

Ethical Values: Acting at all times in such a way as to uphold the public trust.

  • Public servants shall perform their duties and arrange their private affairs so that public confidence and trust in the integrity, objectivity and impartiality of government are conserved and enhanced.
  • Public servants shall act at all times in a manner that will bear the closest public scrutiny; an obligation that is not fully discharged by simply acting within the law.
  • Public servants, in fulfilling their official duties and responsibilities, shall make decisions in the public interest.
  • If a conflict should arise between the private interests and the official duties of a public servant, the conflict shall be resolved in favour of the public interest.

People Values: Demonstrating respect, fairness and courtesy in their dealings with both citizens and fellow public servants.

  • Respect for human dignity and the value of every person should always inspire the exercise of authority and responsibility.
  • People values should reinforce the wider range of Public Service values. Those who are treated with fairness and civility will be motivated to display these values in their own conduct.
  • Public Service organizations should be led through participation, openness and communication and with respect for diversity and for the official languages of Canada.
  • Appointment decisions in the Public Service shall be based on merit.
  • Public Service values should play a key role in recruitment, evaluation and promotion.

Milan October 14, 2010 at 4:44 pm

Another example of the moderate price associated with climate change mitigation efforts:

Contrary to the gloom and doom forecasts touted by the oil companies that support Proposition 23, The Brattle Group finds that AB 32 will increase electricity rates by a mere 2.46 cents per kWh (11.9%) by 2020. Price increases resulting from these policies will only be between 1 to 5 cents in a given year, an increase that will go unnoticed to consumers. Even under the extreme scenario, the potential cost impact of AB 32 is well within the range of year-to-year variation in historic energy costs.

Opponents of action on climate change (and other environmental problems) frequently exaggerate the costs associated with solving them. We don’t need to help them spread that faulty message by speculating about climate change mitigation killing GDP growth, given that the comprehensive economic analyses that have been done say it isn’t so.

I know this comment is a bit repetitive, but it’s an important point.

Tristan October 14, 2010 at 4:50 pm

It is an important point, but I think it’s more important to understand why it’s not being heard.

Milan October 14, 2010 at 4:58 pm

Part of the answer is certainly deception undertaken by the fossil fuel industry.

That said, part of the answer is also the reflexive anti-capitalism of many environmentalists. What I said above about needing the power of capital is true. Once the bankers and investors of the world realize that fossil fuels have no future, an enormous quantity of resources could be transferred to the rapid development and deployment of low- and eventually zero-carbon alternatives.

Tristan October 14, 2010 at 5:27 pm

“Once the bankers and investors of the world realize that fossil fuels have no future, an enormous quantity of resources could be transferred to the rapid development and deployment of low- and eventually zero-carbon alternatives.”

The state could as easily and efficiently transfer resources. Remember – the USSR industrialized within one generation, and the real US motivation in places like Vietnam was the danger that soviet or chinese style “communism” (state-capitalism) were presenting themselves as models for development within a single generation.

Milan October 14, 2010 at 7:40 pm

First, I don’t think that is a plausible explanation for why the United States fought the Vietnam War. I think it had much more to do with the fear of spreading communism, as well as their desire to give their allies confidence that the US would come to their aid as well.

Second, ‘development within a single generation’ doesn’t only happen in communist states. It is a term that could describe the recent experience of South Korea, for instance.

Third, much of the ‘development’ in the USSR was contrary to the welfare of its citizens. The United States may have a major military-industrial complex, but it is far less parasitic upon the population in general than the Soviet military machine was. Ken Alibek’s book describes some of the massive industrial efforts which can only have diminished human welfare.

Milan October 14, 2010 at 7:43 pm

The state could as easily and efficiently transfer resources.

Even if this is true, it isn’t a good argument for the state doing it instead of an adapted capitalist system. We already have a capitalist system. We do not have a communist economy with central control. If the state would only be as good at making the necessary investments, we would not be justified in switching to that system.

You need to make an argument for why the state would be much better at allocating resources than a private sector with proper incentives (like a rising carbon tax) would be.

Even then, it might well be worth paying a bit more to deal with climate change, if it means we don’t need to adopt an oppressive communist government in order to do it.

Tristan October 14, 2010 at 7:46 pm

“I think it had much more to do with the fear of spreading communism”

You believe official explanations? Actually this one is true – but it’s true for the reason I pointed out and you don’t find plausible. Communism might have “spread” because it appeared as a good model to people. I don’t understand why you reflexively say I’m wrong, and then repeat back the official explanation, which might just mean the same thing.

“Second, ‘development within a single generation’ doesn’t only happen in communist states. It is a term that could describe the recent experience of South Korea, for instance.”

So?

“Third, much of the ‘development’ in the USSR was contrary to the welfare of its citizens. ”

After the 60s, sure. But that was after it had industrialized, and caught in technological races – which did not benefit the people.

“The United States may have a major military-industrial complex, but it is far less parasitic upon the population in general than the Soviet military machine was. ”

Apples to Oranges. The USA was always much richer than Russia, so for the two states to have similar military industrial complexes, the share of that complex would always be much larger in the USA. The USA had the benefit of hundreds of years of slavery – the USSR had only a few decades of industrialized slavery.

. October 14, 2010 at 8:57 pm

How Business Can Lead us Beyond Fossil Fuels: a Techonomy presentation by Amory Lovins, followed by comments from Chevron CTO John McDonald and audience questions.

Milan October 14, 2010 at 9:14 pm

That video doesn’t tell the whole story, but it is well worth watching.

Tristan October 15, 2010 at 1:20 am

I don’t think anyone would argue that business could not possibly lead us to climate change mitigation. The problem is that it isn’t. And to make the converse argument – that state allocation of capital could not deal with climate change, is equally absurd. Should we privatize all publicly owned energy? Was Rene Levesque a fool to nationalize hydro in Quebec? There are all sorts of good reasons to think the state should deal with energy – mostly because energy is a long term resource, and the externalities are pervasive. Capitalism deals poorly with long term planning, and with externalities.

Tristan October 15, 2010 at 2:36 am

As for how “we all benefit” from technological innovation and growth – you might watch this video produced by a group which is currently crashing at my house:

http://www.youtube.com/fallingwhistles

Milan October 15, 2010 at 11:11 am

I didn’t claim that everyone benefits from every technology. I said that everyone has an interest in technological innovation and growth – not just those who control large amounts of capital.

There are any number of problematic or even harmful technologies out there – and problematic consequences from growth. That being said, growth and technology have been excellent things overall for humanity.

Milan October 15, 2010 at 11:12 am

Capitalism deals poorly with long term planning, and with externalities.

True, perhaps, but the state is rotten at these things too. Politicians are obsessed with incredibly short timescales, whereas bureaucrats tend to equate ‘being neutral’ with ‘assuming that things will basically stay the same for the next hundred years’.

To me, it seems quite possible that big corporations making capital investments in multi-decade projects actually do more strategic thinking than either the political of bureaucratic sides of government, at least most of the time.

Tristan October 15, 2010 at 11:56 am

“That being said, growth and technology have been excellent things overall for humanity.”

There is no “overall”. There are different groups of people, with different interests.

“To me, it seems quite possible that big corporations making capital investments in multi-decade projects actually do more strategic thinking than either the political of bureaucratic sides of government, at least most of the time.”

So, what do you think of Canada’s investment in hydro and nuclear power? Would a free market have ever built these? Would it have been sane to allow it to, given how many externalities result from damning rivers, or the limited liability as regards nuclear facilities?

You exhibit a religious adherence to the neo-liberal ideals of the free market, which do not appear to be motivated in actual research or examples. I’m not saying the “state” is perfect – but your dismissals of the ability of states to engage in long term planning are simply uncalled for.

Tristan October 15, 2010 at 12:04 pm

“True, perhaps, but the state is rotten at these things too. ”

Let’s think about some mega projects with foresight which that states has undertaken: railways, highways, hydro projects, nuclear energy, the development of high tech electronics, water systems, sewage systems, etc…

None of these developments are possible in a free market. Partially because in a genuinely free market (i.e. no cheap corporate externalization of risks) no one would be able to afford the insurance to try risky projects (i.e. nuclear energy, hydro power). And partially because some fields were so complex that they required decades of military funding before they could be given away to capitalists (high tech).

The hatred of state-planning (while at the same time, allowing the state to do all long term planning) has been a cornerstone of US propaganda since WW2. You have to hate the state because it has a flaw – it’s potentially democratic. Sure, with the existing PR libidinal and corporate incentives, it’s very difficult for a politicien to do anything sane. But it needn’t be this way, politiciens could be elected by an educated populous on the content of their policies – but you take as neutral the libidinal production of desire and manufacture of consent. And, this form of aristocracy is actually quite inefficient for obvious reasons – if you hate democracy so much, you should just advocate a form of fascism – because fascism could actually deal with climate change, and you could maintain the power of the big banks.

Milan October 15, 2010 at 12:08 pm

I agree that the state has played a vital role in the development and deployment of new technologies, and that people don’t commonly give it enough credit. That’s one reason why government purchasing – including military purchasing – can help drive the emergence of valuable new technologies. Government is willing to pay a high cost for new technology, allowing firms to learn how to build it more cheaply and deploy economies of scale.

Nuclear may not be a great example of a technology success driven by government. Nuclear power is hugely subsidized everywhere, yet still cannot compete commercially. It is just too risky and expensive. There is a case to be made that we would be better off abandoning it and focusing on renewable options.

Milan October 15, 2010 at 12:10 pm

I don’t hate the state or state planning. I question whether moving to a much higher level of government control over the economy would actually help us deal with climate change. There would be a huge political cost associated with making the transition, and there is little reason to believe that it would do any good.

Tristan October 15, 2010 at 12:27 pm

“Nuclear power is hugely subsidized everywhere, yet still cannot compete commercially. It is just too risky and expensive. There is a case to be made that we would be better off abandoning it and focusing on renewable options.”

Is it not competitive, today, given appropriate carbon tariffs?

Do you think it might be better to scrap fission altogether and focus all funding on fusion research?

The question about a higher level of government control over the economy is a question about the efficient allocation of capital. Capitalism allocates capital efficiently when, and only when, the best rates of return are in the investments which benefit the public good. If you think climate mitigating legislation will produce those conditions, then, your view is totally consistent. My concerns are 1) I believe there are limits to growth 2) I believe the power finance capital gains from its very important role in the post 70s economy produces a lot of bad things, and we’d be better off with something more like the embedded liberalism of the 50s-70s, and 3) I believe that the impetus to maximize returns always creates an incentive to externalize costs onto the commons.

Milan October 15, 2010 at 1:41 pm

Is it not competitive, today, given appropriate carbon tariffs?

It is impossible to know, really. The industry is too secretive.

It is certainly telling that private companies are only willing to consider building new facilities if they get giant subsidized loans and immunity from civil liability for accidents, above a low level.

The conclusion of my nuclear paper for MITIR discusses this in more detail.

Do you think it might be better to scrap fission altogether and focus all funding on fusion research?

Fusion won’t be ready in time to help us prevent catastrophic climate change. That is likely true regardless of how much we spend on it. There are lots of really hard problems left to solve. Fusion is way, way harder to achieve and maintain than fission.

Milan October 15, 2010 at 1:48 pm

1) I believe there are limits to growth

The Earth has limited biophysical capacities. Within them, I think we can produce ever-better lives for people, by improving and deploying technology, as well as improving social and governmental structures.

2) I believe the power finance capital gains from its very important role in the post 70s economy produces a lot of bad things, and we’d be better off with something more like the embedded liberalism of the 50s-70s, and

There are two responses to this. The first is to question the empirical basis of the claim. The second is to ask whether – even if the current financial system is problematic – it should be our top priority for reform. Insofar as the financial system must change, to prevent catastrophic climate change, those reforms must happen. When it comes to reforms that are difficult but merely desirable, we may have to focus our attention elsewhere.

3) I believe that the impetus to maximize returns always creates an incentive to externalize costs onto the commons.

Governments face bad incentives too. They also need to stay popular, and will also dump their problems on the powerless when they have the chance. While they may be preferable from a theoretical perspective, they are often short-sighted, blinkered, and corrupt in practice.

Milan October 15, 2010 at 1:52 pm

Here is the site for the prototype for a prototype for a commercial fusion reactor:

There is no guarantee it will work, or that the one after it will work, or that the commercial reactors that could follow will work. Given plausible development times, it seems likely that the world economy will already be decarbonized before there is a commercial fusion plant generating power for public use. That is especially true if we do manage to keep warming to under 2°C, since doing so requires rapid decarbonization.

. October 15, 2010 at 2:50 pm

Can the Government Do With Clean Energy What It Did With the Internet?

Cap and trade appears to be politically dead. But could a bipartisan solution to global warming be around the corner? The New York Times’ David Leonhardt this week writes about the possibilities of “much more, and much better organized, financing for clean energy research.” As he points out, “the reliably conservative American Enterprise Institute and the left-of-center Brookings Institution” have a “joint proposal to increase federal spending on clean energy innovation.” A buildup in research-and-development spending seems more politically feasible, and has good precedents in government-spurred advancements in radar, biotechnology, and the Internet, which ultimately created jobs. So what are the pros and cons? Here’s the debate.

Tristan October 15, 2010 at 3:15 pm

“While they may be preferable from a theoretical perspective, they are often short-sighted, blinkered, and corrupt in practice.”

Institutions are complicated. Governments are only potentially democratic, and only potentially engage in rational long term planning. Presumably, our institutions could be improved to encourage good decision making – although it is not entirely clear how this can be achieved, or what route might be taken to reach those reforms. Many thinkers have thought this potential for improvement has essential limits – i.e. Hegel thought every great power by nature grows an empire, over reaches itself, and destroys its power through a series of profitless wars. And it’s not obvious that he’s wrong – that cycle has happened many times. That said, if we want a chance at surviving in the 21st and 22nd centuries, we need to use “all our well learned politess” to prevent the chaos (the figure of the devil) from ending much of what’s been positive about “progress”.

“Just as every cop is a criminal
And all the sinners saints
As heads is tails
Just call me Lucifer
‘Cause I’m in need of some restraint

So if you meet me
Have some courtesy
Have some sympathy, have some taste
Use all your well-learned politesse
Or I’ll lay your soul to waste, mmm yeah”

– from Sympathy for the Devil by The Rolling Stones

Tristan October 15, 2010 at 3:17 pm

“Given plausible development times, it seems likely that the world economy will already be decarbonized before there is a commercial fusion plant generating power for public use. ”

There is a tendency to speak as if decarbonization “will” happen. This strikes me as the Marxist fallacy – the idea that the very idea of the necessity of revolution is part of ideology, something that prevents revolution. Now, ignore everything you don’t like about Marxism – and I think we can still see this way of thinking as something which tends to de-emphasize our individual duties.

Milan October 15, 2010 at 3:20 pm

Before nuclear fusion is a viable technology, either decarbonization will happen or catastrophic climate change will happen.

That seems the most likely situation, given its level of development. Lots more money seems unlikely to change it.

Tristan October 15, 2010 at 3:34 pm

How “either or” is catastrophic climate change? How catastrophic will climate change be even strong de-carbonization beginning in the next 2 or 3 years? This might be a good topic for a separate post. Essentially, maybe we should be using the term “catastrophic” more carefully.

Milan October 15, 2010 at 3:53 pm

Such a post is already up.

To be a bit more accurate: Before nuclear fusion is a viable technology, either decarbonization will happen or catastrophic climate change will happen have been assured through the accumulation of greenhouse gases in the atmosphere.

Catastrophic climate change will be ‘locked in’ before it is actually experienced. Imagine this chart, with the hump still growing at 2050.

Tristan October 15, 2010 at 6:09 pm

“I define this as warming at such a level that it threatens the continued existence of human civilization, for instance by radically altering regional weather patterns and putting massive strain on agricultural systems.

I don’t think this is precise enough. Are we not already locked into massive ecological changes, that will strain agriculture and distribution systems?

Milan October 18, 2010 at 9:10 am

We probably don’t yet have 2°C of warming in the pipe, relative to pre-industrial temperatures. 2°C seems to be the accepted threshold for ‘dangerous’ warming. ‘Catastrophic’ warming might accurately describe temperature increases of 4°C to 5°C – the kind of increase we would likely see if our emissions keep growing for most of the century.

Powerful positive feedbacks are a wildcard element.

. October 18, 2010 at 12:23 pm

Projected climate change and its impacts

“For the next two decades a warming of about 0.2°C per decade is projected for a range of SRES emissions scenarios. Even if the concentrations of all GHGs and aerosols had been kept constant at year 2000 levels, a further warming of about 0.1°C per decade would be expected. Afterwards, temperature projections increasingly depend on specific emissions scenarios.”

. October 21, 2010 at 2:16 pm

Ten years ago rich countries dominated the world economy, contributing around two-thirds of global GDP after allowing for differences in purchasing power. Since then that share has fallen to just over half. In another decade it could be down to 40%. The bulk of global output will be produced in the emerging world.

The pace of the shift testifies to these countries’ success. Thanks to globalisation and good policies, virtually all developing countries are catching up with their richer peers. In 2002-08 more than 85% of developing economies grew faster than America’s, compared with less than a third between 1960 and 2000, and virtually none in the century before that.

This “rise of the rest” is a remarkable achievement, bringing with it unprecedented improvements in living standards for the majority of people on the planet.

. October 21, 2010 at 2:16 pm

Calculations by Dale Jorgenson of Harvard University and Khuong Vu of the National University of Singapore make the point starkly. They show that the average underlying annual growth rate of the G7 group of big rich economies between 1998 and 2008 was 2.1%. On current demographic trends, and assuming that productivity improves at the same rate as in the past ten years, that potential rate of growth will come down to 1.45% a year over the next ten years, its slowest pace since the second world war.

. October 23, 2010 at 12:37 pm

“How serious is the threat to the environment? Here is one measure of the problem: all we have to do to destroy the planet’s climate and biota and leave a ruined world for our children and grandchildren is to keep doing exactly what we are doing today, with no growth in the human population or the world economy.”

Speth, Gus. The Bridge at the Edge of the World.

Milan October 23, 2010 at 12:38 pm

Climate change cannot be addressed by suppressing growth, since the status quo is enough to wreck the climate.

Decarbonization of the global economy is the sole route forward.

Milan November 14, 2010 at 6:49 pm

This is why economic growth can continue:

We can get better at building everything, using fewer raw materials and generating less waste.

Tristan November 14, 2010 at 7:44 pm

I don’t understand why the fact computers get faster, better, cheaper is a reason economic growth can continue. If anything, that’s a reason it will decline: if computers start costing less, people may spend less on computers. If people spend less on computers, that contributes to an economic contraction. What drives economic growth is not that things get better, but that things get more expensive – the bundle of goods bought by the average person gets bigger in terms of net dollars spent. That’s what economic growth is – not getting more for your money, but spending more money. “Economic growth” doesn’t care what you get for your money.

Tristan November 14, 2010 at 7:46 pm

What you are talking about is real growth, the kind of growth measured in quality of life indexes that you reject because they are not objective enough. The same kind of indexes which show a remarkably small increase in quality of life since the early 70s, which corresponds with the stagnation of wages which you also like to ignore.

I’m in favour of real growth, as is everyone. Everyone wants things to get better. The debate concerns whether things getting better will always enable you to earn a return on investment.

Tristan November 15, 2010 at 12:54 am

Computers, incidentally, are about the worst example of a free market product you could have come up with. For reasons I shouldn’t have to explain.

. December 9, 2010 at 7:32 pm

Economics focus
The joyless or the jobless
Should governments pursue happiness rather than economic growth?

Nov 25th 2010 | from PRINT EDITION

IN 2006 Richard Layard, an economist at the London School of Economics, argued that unhappiness was a bigger social problem in Britain than unemployment. In the “Depression Report”, which he co-wrote, Lord Layard pointed out that more people were claiming incapacity benefits because of depression and other mental disorders than were on the dole.

The subsequent recession fixed that. The jobless now outnumber the joyless—there is nothing like a drop in GDP to remind everyone how much this much-maligned metric matters. But despite the economic gloom, economists and policymakers have not lost their interest in happiness. This month David Cameron, Britain’s prime minister, asked the Office of National Statistics to measure the country’s “general well-being”, as part of his promise to focus on GWB not just GDP.

Lord Layard has long argued that GDP is overrated as a gauge of a country’s well-being. Once an economy reaches an income per person of about $15,000 (measured at purchasing-power parity), economic growth ceases to add to happiness, he says. America, for example, is considerably richer than Denmark, but Americans are no more satisfied with their lives. His claim was echoed in “The Spirit Level”, a recent book by two British academics, Richard Wilkinson and Kate Pickett.

But sometimes people have the knowledge and the self-command to choose happiness, and they still fail to do so. That is the surprising finding of a recent study by Daniel Benjamin, Ori Heffetz and Alex Rees-Jones, three economists from Cornell University, and Miles Kimball of the University of Michigan. They persuaded hundreds of people to answer conundrums such as: would you rather earn $80,000 a year and sleep 7.5 hours a night, or $140,000 a year with six hours’ sleep a night?

About 70% of people said they would be happier earning less money and sleeping more. Likewise, almost two-thirds would be happier making less money and living close to their friends, rather than more money in a city of strangers. In response to another question, over 40% said they would be happier paying twice the rent to enjoy a shorter commute of ten minutes, rather than 45.

These findings support the notion that money isn’t everything. But ask people what they would actually choose, as opposed to what would make them happy, and their answers can sometimes surprise: 17% of those who say they would be happier sleeping for longer and earning less also say they would still choose the higher-paying job; 26% of those prizing short commutes over low rents would still take the cheaper home; and 22% of those who value friends over money would still move to where the money is.

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