Club of Rome Redux

Roberto Peccei is a major star in physics and is my colleague at UCLA.   He has recently written a paper on environmental economics and I’ve been chatting with him about this work.  Roberto’s father was Aurelio Peccei who was the founder of the Club of Rome.   The Club of Rome started a fascinating and ongoing debate concerning the big topic of the “limits of growth”.  Roberto has returned to his father’s core topics.  In a seminar at the UCLA Institute of the Environment today, Roberto sketched his vision for a new framework for economics.  He endorsed this vision  of measuring well being rather than relying on a nation’s per-capita GNP.  He emphasized the importance of putting a price on natural capital so that national income accounts reflect “green accounting”.  I agreed with 94% of his presentation.

To quote Peccei;   “But what should we do? In my view we need to face squarely and honestly the phenomena
which is at the core of all our problems: growth must be limited. In a way, it is ironic that
40 years after “Limits to Growth” we should return to the original concept, which was then
so heavily criticized. However, in a finite globe it is not sustainable to have any of the
dynamical parameters of the world [population, industrial production, pollution, etc.] grow
continuously. We are well aware of the necessity of limiting the growth of many dynamical
parameters in our planet [e.g. population and pollution], but all our economy is based on
growth. Although concepts like “zero growth” or “steady state economics” are ideas that are not
very appetizing economically, to overcome the predicament that mankind finds itself in we
need a new economic system where growth is not the driving parameter.”

He is arguing that to guarantee that we do not exhaust finite resources that we must bound population growth and per-capita income growth.

A free market economist would say that we don’t have to suffer this tough “lock down” on well being.   Why?   We make our choices today over consumption and investment by forming expectations of the future. If we anticipate that we are running out of resources and if market prices reflect this anticipated scarcity (think of peak oil and rising oil prices), then rational consumers will substitute away from oil intensive products (i.e Hummers) and suppliers will invest in substitutes that economize on oil (i.e electric cars), the net effect of such anticipatory reactions is that we have a smooth adjustment such that we can have the win-win of ongoing economic growth without exhausting our resources.

Our mind is the key sustainability input.  With good brains, enough time, and competition and access to capital to finance major labs and universities, we can substitute away from any resource.  I made this point today at the Institute and my UCLA colleague Dave Jackson argued that there are scarce metals for whom there are no substitutes; that such metals have unique properties.  If we have a finite supply and we are depleting this supply and if there are no substitutes then he is right that we are on an unsustainable consumption path.  But, I don’t believe this.    We are only “doomed” in the face of growth if there is only one way to produce products (i.e Leontief production technology) and if this product is crucial for our survival and if we have a finite supply of the raw key input.   I don’t believe that these conditions hold in many cases but I will leave it to the smart RBC community to get nasty as usual.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

23 thoughts on “Club of Rome Redux”

  1. Did Roberto Peccei have anything to say that hasn’t been said already by Herman Daly, John B. Cobb, Jr., and Wendell Berry for the past 30-40 years? Index of Sustainable Economic Welfare anyone?

    As for your last paragraph, Professor Kahn, Julian Simon couldn’t have said it better. He was wrong, too.

  2. “I don’t believe that these conditions hold in many cases but I will leave it to the smart RBC community to get nasty as usual.”

    Nasty? Oh dear, your feelings were hurt. But you waded back into the fray. Good for you.

    Ok. So I don’t think that the first 94% of what you were saying is ideological, just common sense. But I am curious… what does the fact that the going salary for the human beings that would presumably staff “major labs and universities” is way below the income flow required to service the implied debt from the initial investment the human beings have to make in order to qualify for the positions in those “major labs and universities” mean for your hopes? Ever thought about that?

    Care to comment? I really do think this is the achilles heel of all these sorts of pollyana Simonesque prescriptions.

    There is no demand side to your hopes. None at all.

  3. Tragedy of the commons. Risk that discounting the future accelerates the doomsday. Pervasiveness of externalities and market failures. What if we are living in a bubble resource-extraction economy, like an inflationary universe in a multiverse foam?

  4. Our mind is the key sustainability input. With good brains, enough time, and competition and access to capital to finance major labs and universities, we can substitute away from any resource.

    Sigh.

    The hopeful, sheltered, corunucopian Wish that Would Not Die.

    Would that nature and physics and chemistry actually worked that way.

  5. Would that nature and physics and chemistry actually worked that way.

    I think recycling does work that way.

    Seriously–what can you think of that was importantly scarce in 1910, that is still importantly scarce?

  6. Recycling does work that way, because of the First Law of Thermodynamics, which can be expressed as a conservation principle: we don’t use up matter, when we use it. Developed countries have been gradually replacing the mining of iron with the recycling of iron products.

    There are exceptions. Helium may be one. There’s no way to produce it, and no way to contain it on earth, so, effectively, we do use it up. It’s cheap now, because it is a co-product of natural gas extraction. But, we will exhaust the available supply in time.

    The second law of thermodynamics dictates that any use of energy results in entropy. We cannot eat without . . . the other thing. The capacity of the earth to absorb that entropy, that waste and pollution, is limited. The failure to “recycle” carbon dioxide and methane and other greenhouse gases fast enough drives climate change. As human industrial civilization demands a larger share of the commons of global carrying capacity, we risk destroying, for example, the ocean ecology, which may already be well along in a collapse. Crowding the global commons undermines its productivity. “Peak oil” is the prime example. “Peak oil” does not mean that we are literally running out of petroleum any time soon. What it does mean is that the energy expended in extracting a given amount of useable energy is rising rapidly. Which means that its entropy tax on the global commons is rising.

    In other words, what Wimberly said.

  7. > rational consumers

    Objection.

    Assumes as fact something contradicted by copious evidence.

  8. To me, the most significant failure of the original Club of Rome position (which was a hot topic when I was in grad school), and its recurrent re-emergences, is that its advocates do not face up to its full implications, which, really resolve themselves to this choice:

    1. Do poor countries remain poor?
    or
    2. Do rich countries, voluntarily or involuntarily, reduce their standards of living?

    If you accept that growth *must* be limited, then you must also accept that this choice must be resolved. (1) seems to me to be immoral. And (2) seems to me to ask of rich nations something they are unlikely to do *voluntarily.*

    (Note that I am not taking a position here about the vailidty of the Club or Rome position; the issue is resolving a real dilemma in the consequneces of that position being correct.)

  9. More nastiness I suppose:
    http://www.youtube.com/watch?v=i3byt7xMSCA

    And to reiterate what Bruce and James say. The First Law is true, but given absolutism of the Second Law, the First Law is basically irrelevant on anything approaching a global scale in the human economy on anything resembling a historical timescale. The Second Law of Thermodynamics is not subject to appeal or repeal. But, and this is a big but, the earth is not a closed system as long as the sun shines. This is what has been forgotten by classical/neoclassical/postmodern/monetarist economists in the “bubble resource-extraction economy.” The “economy” does not exist except as a component of the biosphere. Until this is recognized as part of the apparatus of formal economics, the utility of economists will be limited to checkbook balancing. Not unimportant, but not really essential either.

  10. [Matthew Kahn] assumes as fact something contradicted by copious evidence.

    Speaking of copious…

    A million rational consumers, many obese, a lot of them fat, and most on the fast track to Diabetes 2 and Ischemic heart disease, drove thru McDonald’s yesterday and ordered 3000 calories of cow, potato, and sugar-water.

    So specifically Matthew in your vision of smooth adjustment and win-win and rationality: How will McDonald’s consumers and McDonald’s itself evolve as we hot-step towards 9 billion on the planet all waiting to be served greasy cow meat from motorized palanquins? How will this win-win play out?

    Instead of turtles all the way down…
    Can you show us how it is going to be cows all the way up?

    http://en.wikipedia.org/wiki/Turtles_all_the_way_down

  11. Way back in the 1970s we proved by example that you could decouple GDP growth from energy and material consumption. And GDP growth is even a poor proxy for utility and morbidity/mortality. So duh.

    The crucial-materials issue is an interesting one, because in general we’re not running out of those materials in any hard sense, we’re running out of economically (and/or environmentally) feasibly recoverable reserves. Which says something about our economic organization…

  12. “If… then rational consumers will substitute away from …”

    And these rational consumers, where do you find them? Because in the world I live in, they are few and far between.
    Or what is your explanation for the many many examples of previous environmental catastrophes, as detailed by, eg, Diamond? Those silly people were not rational, but damnit, nowadays we are?

  13. “The Second Law of Thermodynamics is not subject to appeal or repeal. But, and this is a big but, the earth is not a closed system as long as the sun shines.”

    The path from here to a Dyson sphere is not at all obvious…

    Meanwhile, the energy that falls on earth from the sun is diffuse, and those mechanisms that exist to concentrate it, whether they be windmills, fields of biofuels, or tanks of algae, require vast amounts of space.
    None of this is secret, you know. People who actually understand physics and chemistry have DONE the calculations, as opposed to relying on “mind as the key sustainability input” — and those calculations confirm the pessimist’s conclusion.

  14. “The crucial-materials issue is an interesting one, because in general we’re not running out of those materials in any hard sense…”

    This simply shows how correct Wittgenstein (or Orwell) was — we are prisoners of our language, and if our language is braindead then we will be braindead.

    Yes, of course, by conservation of matter, we are not running out of various materials — the same atoms that existed ten thousand years ago still exist on earth — and heck, a whole lot more of them exist under the earth, or on the moon, or on Jupiter.
    The point is not “running out”, the point is “accessible”. With energy (and even that is a broken language term — the phrase we should be using is “negative entropy”), anyway with enough energy we can do anything we want, whether it be mining 10 miles underground, shipping minerals from the moon, or separating the atoms we want from sea water.
    The problem is, unfortunately, that that concentrated energy is running out, and its ultimate “replacement”, namely sunshine, is pretty damn non-concentrated. This COULD be concentrated enough by various means to allow a small population (perhaps half a billion) to live like kings — but if humans were willing to limit their numbers in that way we wouldn’t be where we are now…
    The choice made by humanity since the beginning of time has always been to ramp up the numbers until most people are on the edge of starvation and living like a peasant, with but minor variants on this in different societies (tamp down the numbers a little in most medieval england, engage in some infanticide in polynesia, etc etc); and I fully expect this is the state to which we will return. The only real question is whether, on the way there, the bulk of the deaths will be from war, from starvation, or from plague.

  15. What I didn’t make explicit above wrt the fantasy substitutability wish is not recycling or entropy. It is that our (western) societies were built on cheap energy. Closing the loop is a key step in having productivity and efficiency, surely. But the basic fact is: we are propping up our current numbers with cheap energy.

    When cheap energy goes away, what are you going to substitute it with? Tea Party anger? Rare Earth Minerals won’t come bubbling up out of the ground.

  16. I’m betting on plague. Maybe, war or terror as, or using, plague. But, plague. The ability to synthesize a highly lethal, highly contagious disease is something Mother Nature and Evolution mostly shy away from. The Plague of Justinian and the Black Death were doozies, nevertheless, and right now, though human lab rats probably cannot do much better than the 1918 flu, and even that would tend to fizzle out, despite jet travel, . . . as Professor Kahn says, with good brains, enough time, and competition and access to capital to finance major labs . . . . We don’t need the natural incubators of trench warfare or Chinese animal husbandry, anymore. All we need is an oppressed graduate student, in the 9th year of his molecular biology Ph.D., getting stuck in traffic.

  17. The problem is, unfortunately, that that concentrated energy is running out.

    This is flatly not true; the safety trade-offs that have led to a widespread choice not to adopt nuclear energy with fuel reprocessing are social, not physical, constraints. Just current stocks of concentrated uranium and plutonium, with fast breeder technology and fuel reprocessing (all of which is known, existing tech) could fuel the entire world at US levels of power consumption for millenia.

  18. Sam, why not throw fusion into the mix as well?

    Is fission going to happen — and happen fast enough to stave off the collapse I foresee? Well, in theory it COULD. In theory lots of things could happen if society were rational. In the real world, I’m not so sure.

  19. We have no natural predators…our numbers will increase until collapse. The problem with our collapse is that, unlike other species, we have both the power and propensity to take everything else with us.

  20. We won’t take everything with us. We are an extinction event, but not an annihilation event.

    And I like the sleight-of-hand to distract away from ‘cheap energy’ to ‘concentrated energy’.

  21. Trying not to be pugnacious, Dan, but what is the practical difference between “cheap energy” and “concentrated energy”?
    Is your point that fission is concentrated energy but is not cheap?

    MY point, to make it clear, is that sure, you can integrate the total flux of sunlight hitting the earth, and it’s a big number. But that flux hits the ENTIRE earth, and when you try to concentrate it enough to do anything interesting, difficulties arise.

  22. Sam, why not throw fusion into the mix as well?

    It’s not known, existing technology. That’s the thing with fission and reprocessing–it does not require any technical progress, or even any mining.

  23. Maynard asked Dan, but what is the practical difference between “cheap energy” and “concentrated energy”?

    I wasn’t aware “concentrated” meant “cheap”. Maybe I’m not on enough energy listservs.

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