Malthus Revisited & Economists Finally Learning What a Resource Is

Posted: April 7th, 2008 by: h2

Any doubts I had about just how serious the issues facing us actually are were dissipated today in a series of new articles.

The first is from Business Week. In general, while I will use left leaning resources, I now prefer to find most stuff in the mainstream, because that shows much more clearly where awareness actually lies. It’s pretty much a given that left analysis tends to be far ahead of the times.

Rising populations. Skyrocketing commodity prices. Strains on natural resources. Is this our Malthusian moment?
The rise of the frontier economies is putting too great a strain on natural resources. The price increases we’re witnessing aren’t a temporary market dislocation, but a permanent shift into an Age of Scarcity.

Could the pessimists be right?

They have some evidence in their corner. Certainly, despite some recent declines, commodity prices are at nosebleed heights. The Rogers International Commodities Index, made up of 36 different commodities ranging from agriculture to energy to metals, is up 383% over the past 10 years. Oil prices have jumped from $23 a barrel in 2003 to around $100 currently. Part of that oil price hike could also reflect that the world is near “peak oil,” the term used to define the transformative moment when global oil production starts declining gradually over time.

Just as central, in my opinion, are these articles in Scientific American, The Economist Has No Clothes, and Brother, Can You Spare Me a Planet? (full version).

The strategy the [19th century] economists used was as simple as it was absurd—they substituted economic variables for physical ones. Utility (a measure of economic well-being) took the place of energy; the sum of utility and expenditure replaced potential and kinetic energy. A number of well-known mathematicians and physicists told the economists that there was absolutely no basis for making these substitutions. But the economists ignored such criticisms and proceeded to claim that they had transformed their field of study into a rigorously mathematical scientific discipline.

To make this more clear, what is happening is that the mainstream is starting to question certain key assumptions that have governed our behavior for the last few hundred years. One of the key components of this world view has held two completely false beliefs as almost sacred:

  1. Growth is not only an inherent good, and desirable, but is the only way forward.
  2. Raw materials are simply economic topics, subject only to the laws of economic theory. This latter one has caused increasingly absurd beliefs, such as, no matter how much energy it takes to extract a barrel of oil, if the price is high enough, the market will find the oil. This ignores simple physics, which shows that if it takes more energy to extract an energy resource than the extraction yields, the process is not viable. This concept is also known as EROI (Energy Return On Investment, alternately: EROEI).

After Nicolas Stern, an internationally known development economist and former chief economist at the World Bank, was asked by the British government to prepare a report on the economics of climate change, he did something that no other mainstream economist with a similar reputation had ever done. He crossed over the divide and took an extended course on the science of global warming from environmental scientists at the Hadley Center in London. The 700-page report that resulted from this collaboration contained the first realistic assessment of the costs of reducing global emissions of greenhouse gases to levels where the most disastrous consequences of global warming are unlikely to occur.
Brother, Can You Spare Me a Planet?

So what is happening here? When you have Business Week pointing out basically the same thing that Jay Hanson (interview), of fame, or infamy, depending on your point of view, has been saying for a decade, something is definitely going on. I don’t mention Jay here to either agree or disagree with his views, which are worth your own time to think about, but to point out that in a very short 10 year span, those views are now hitting the mainstream.

Of course, Business Week then goes on to repeat some tired myths, like the Club of Rome’s Limit’s to Growth being disproved by the next 20 years failing to hit that limit.

Commentators and analysts have periodically predicted a Malthusian nightmare—wrongly. Remember the Club of Rome and its terrible forecast about the limits to growth published during the 1970s oil and food crisis?
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And then of course they go on to suggest more growth is the solution, but hey, what can you expect, this is after all Business Week! The repetition of that Club of Rome myth is especially telling, since the original Limits to Growth (download rtf abstract) did not suggest any concrete outcome at all, it merely posited a collection of models, and then followed each model to its logical outcome. For those wondering, we followed, and are following, the worst case model, and are at roughly where the book said we’d be, give or take a bit. And that book was quite conservative, by the way.

Matt Simmons discovered the wide gap between what the original book actually talked about and what the system tried to paint it as.

After reading The Limits to Growth, I was amazed. Nowhere in the book was there any mention about running out of anything by 2000. Instead, the book’s concern was entirely focused on what the world might look like 100 years later. There was not one sentence or even a single word written about an oil shortage, or limit to any specific resource, by the year 2000.
While many readers concocted various “imaginary” assumptions, the book’s conclusions were quite simple. The first conclusion was a view that if present growth trends continued unchanged, a limit to the growth that our planet has enjoyed would be reached sometime within the next 100 years. This would then result in a sudden and uncontrollable decline in both population and industrial capacity.

The second key conclusion was that these growth trends could be altered. Moreover, if proper alterations were made, the world could establish a condition of “ecological stability” that would be sustainable far into the future.

The third conclusion was a view that the world could embark on this second path, but the sooner this effort started, the greater the chance would be of achieving this “ecologically stable” success.

Classical Economics vs. the Real World

And then you have Scientific American prominently featuring a long, in depth article on just what is wrong with classical economics re current realities, this is getting about as mainstream as it gets.

Even the supposedly ‘radical’ Karl Marx, despite his delusions of making economics truly scientific, via his so-called ‘scientific socialism’, totally failed to consider resources or environmental factors when constructing his theories, preferring instead just to regurgitate the same essential views on those areas as his 19th century economist contemporaries did when constructing his ‘labor theory of value’, which is just a rewrapped version of the status quo thinking of the late 19th century.

So now we appear to be coming full circle, finally.

So what does this all mean?

It means that the primary productive system in the world, finance based Capitalism, may have to be re-evaluated. Why? Because the core premise of Capital and Capitalism is growth. And growth cannot happen without energy and resource consumption. The entire interest based finance system depends on this type of growth, since it is growth and expansion that enable creditors to pay back the loans.

You can already see quite easily what happens when growth fails, for example the current sub-prime housing collapse is a good indicator of this. The moment house prices fail to grow, or expand, the loans become essentially worthless.

To understand why growth cannot be sustained, you simply need to follow some simple arithmetic, which will enable you to begin to understand why growth as the core of our system simply cannot be sustained. Albert Bartlett’s great essay, Arithmetic, Population and Energy.

Now there’s something else that’s very important: the growth in any doubling time is greater than the total of all the preceding growth. For example, when I put eight grains on the 4th square, the eight is larger than the total of seven that were already there. I put 32 grains on the 6th square. The 32 is larger than the total of 31 that were already there. Every time the growing quantity doubles, it takes more than all you’d used in all the proceeding growth.

There are other ways of managing human societies than growth based ones, but we do not currenlty live in those. That is not to say we couldn’t do so, but we do not currently do so.

There’s nothing particuraly wild or radical about non-growth based systems, by the way, you simply do not require expansion or profit, but engage in what is called steady state economics (more here and here).

Steady state economic systems tend to be simple, because they work on a human, local, level, and use human cultural constants to function. A true human scale, individual, free market, for example, as opposed to the absolutely non-free markets we have today, is an example. That’s where people buy and sell goods to, and from, each other, like they always have done, with only basic intermediaries.

Such markets have always formed naturally, without any government intervention, although in our current system, you would require regulation to protect them against the growth based system.

But it goes far beyond this, since we are also looking at Global Warming/Climate Change as well.

But at least the dialogue is beginning, although it’s currently about 30 years too late, and every year that passes is one more year lost, that we can never get back, we’ve pumped that much more CO2 into the atmosphere, we’ve created that many more humans to worry about, and the scales are that much closer to tipping over permanently.

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