[Global Change: 1060] Re: economics and anthropogenic climate change: an analogy

There is a lot that's fundamentally wrong with the current brand of capitalist economic theory, the "neoclassical" synthesis that currently reigns in the American economics profession.  But I think this analogy is a little too simplistic and somewhat unfair to mainstream economists, some of whom are better at grasping material reality than this parable suggests.

 

Nicholas Stern, to take one example, is a respected capitalist economist -- former chief economist with the World Bank  -- who evidently takes the bath-tub filling up very seriously.

Witness his new report on the subect.

 

I haven't read US economist William Nordhaus on the subject of global climate change, but the headlines in the news media indicate that in the 1990s Nordhaus, too,  studied the issue of anthropogenic climate change and published urgent warnings about the need to take action on the problem.  

 

These days, if you read scan the news articles in FORTUNE, FINANCIAL TIMES and the ECONOMIST, and even sometimes in the Wall Street Journal, you'll find evidence that even some corporate business economists are highly concerned about CO2 emissions and AGW.  If only for the risks that AGW poses to the insurance industry, for starters. 

 

The economist in this fable who's playing Tetris on the computer while the bathtub fills therefore therefore MAY be a fair model for all too many mainstream economists, especially in the Western fossil fuels industries.  But  he doesn't represent the whole economics profession.

 

It is fair, I think, to conclude that even most of those business and governmental economists who are able to unde rstand the threat of AGW are still committed to a completely unsustainable model of exponential economic growth being able to continue on this planet forever.  And this despite what the Club of Rome stated in its 1971 "Limits to Growth" report.

 

But there are some urgent reasons besides escapism or professional neglect why capitalist economists almost invariably favor perpetual growth and almost invariably ignore warnings by ecologists and other physical scientists about such growth being logically impossible. 

 

Back in the pages of "The Wealth of Nations," writing in the 1770s, Adam Smith included that free market capitalism is only favorable to human welfare when society is in a "progressive" state -- that is, when total economic output is growing pretty rapidly.  When growth stalls or a market economy actually begins to contract, Adam Smith reasoned, average business profits will fall to a v ery low level, because too much capital investment will be chasing too few business opportunities. 

 

Because of the structure of the capitalist labor market, Smith also believed, an economy in the "stationary state" or in recession will have a relatively low demand for labor compared to the available supply, and because of the way supply and demand work in the job market, this will result in wages being driven down by employers until most working people are living in "misery," or severe poverty.

 

Most mainstream economists, with some brave or foolish exceptions, fundamentally accept Adam Smith's formulation of the issue.  Ergo:  virtually all of them are intent on the economy perpetuating growth at all costs -- to forestall steeply plummeting profit levels and rock-bottom wages.

 

The "steady-state" or no-growth economist Dr. Herman Daly, in his books on c reating a steady-state economy, also has pointed out that most capitalist societies, and most socialist societies that have so far existed as well, have generally relied on economic growth to quell social conflict, as a substitute for a fairer distribution of wealth and income. 

 

So long as the economic pie keeps growing, Daly reasons, the poor and other discontented groups can be placated with promises that "a rising tide lifts all boats," and this without the government having to take any money from the upper classes so as to keep the lower classes happy. 

 

But if growth stops, then poverty alleviation becomes a zero-sum game, and the poorest people can become richer only if someone else gives something up.  Which is a sure-fire recipe for bitter social conflict.

 

It's almost certainly these considerations, and not simply professional neglect, that ha s so many capitalist economists simply ignoring the upstairs bath-tub overflowing while they play with the Tetris game.

 

Because in the analogy, the Tetris game isn't really just a game.  So long as the competitive and individualist rules of captialism continue unchanged, the "game" is deadly serious.  Serious enough to make most economists afraid of even thinking about shutting it down -- even if a new Deluge lies around the corner.

Michael Tobis <mtobis@xxxxxxxxx> wrote:

Imagine that you are an economist who enjoys playing Tetris on your computer, so while your bathtub is filling you decide to play a round in the living room upstairs.

The round of Tetris is going fabulously well. You are in the zone. You are placing piece after piece where it goes; you have long since passed your all tim e high score; you are having a whale of a time. Your bathtub is meanwhile filling up.

A tiny corner of your mind suggests that you ought to get up and check your bathtub. Fortunately, you are an economist. The tiny corner of your mind that is concerned with the structural integrity of your house and not the joy of Tetris is sufficient to reason as follows.

Probably the tub is not full yet, so the utility to me to keep playing this next piece exceeds the utility of running downstairs to turn off the water.

Maybe the tub is already flooding. Well, then, that is too bad, but the additional flood cost of playing this next piece will be small compared to the total flood cost, while the pleasure I am getting from this game going so well would be terminated.

Perhaps the tub is right at the point of starting a flood; a "tipping point". Well in that case you suppose you would have to run right downstairs and turn it off, but what are the odds of th at? Certainly there is no way to prove this highly unlikely circumstance to you, especially given that you are upstairs playing Tetris and paying very little attention.

And why should you pay attention? After all, you have just proven that the matter does not deserve much attention for the duration of placing this next Tetris block. Perhaps you will revisit this problem later when you are placing another block.

So you keep playing, secure in the knowledge that you have maximized utility.

mt

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