Reading New Thoughts: Green and Bowles/Carlin Rethink Economics

Disclaimer:  I am now retired, and am therefore no longer an expert on anything.  This blog post presents only my opinions, and anything in it should not be relied on.
What I am talking about here is a history of West Africa circa 1200-1850 called “A Fistful of Shells”, by Toby Green, and a white paper by Samuel Bowles and Wendy Carlin analyzing CORE’s “The Economy”, a new multi-sourced introductory Economics textbook.  Both seem to me to provide different and troubling new ways to view economics as a whole; your mileage may vary.

Let’s start with Green.  Imho, his argument runs something like this:  a trade in gold (sub-Saharan Africa providing, North Africa/Europe/Middle East benefiting) sprang up, supplemented and then replaced by a trade in slaves.  These slaves were a natural outgrowth of previous uses of slaves (acquired in warfare, or involving criminals and excess population) both in Africa and Europe/Middle East.  

The initial result was positive economic growth.  The single source of the gold was iirc in Senegambia, and the people there carefully protected themselves and their mining from discovery and takeover, so the rest of West Africa began to be drawn in as middlemen.  Kings with control over some aspect of the trade arose, and were able to siphon off some of the profits to establish and maintain power.  Thus the Mali and Songhay “empires”.  

However, the trade relationship was fundamentally unequal.  Cowrie shells, especially those imported from the Maldives, were used locally as currency (as well as cloth and iron bars), but the fact that cowrie shells were relatively easy to produce made any currency exchange highly unequal – there are records indicating that some kings attempting a pilgrimage to Mecca had to pay in gold along the way, finally running out and then incurring debts that eventually led to the downfall of their kingdoms.  When the need for slaves for the New World surged, it effectively acted as a replacement in the economy for the decreasing demand for gold.  And when export of slaves to the New World ended, it was replaced by slavery within the kings’ domains.  

Moreover, the new slave-based economy had its own subtle traps.  Carried to an extreme, as it soon was, it meant the impoverishment of those outside the kings’ and European traders’ political control, as they moved to isolated and protected communities to escape the slave raiders.  Even within the scope of the new polities, the proportion of those in danger of slavery went up, and hence the economic benefits, such as they were, went to relatively few compared to the situation north of the Sahara. 

Analysis of Green:  Commodity/Currency-Based Economic Inequality

Green’s conclusion is, I think, worth quoting:  “an expansion of trade on the one hand [from Europe and the Middle East] provoked less access to the wealth of capital on the other [for West Africa] … growing capital differentials [were] exacerbated by the trade of currencies that were losing economic value globally – such as cowries and cloths – for those that were either gaining or producing surplus value, such as gold and human beings … When currency imports to [West] Africa were not matched by trade goods, there was inflation of currencies used in Africa … When trade goods were also imported, these competed with local production and reduced extensive exports of African manufactures … This declining export deterred investment … in manufacturing …”  In other words, a strong degree of participation in the global economy fostered from Europe from 1400 onwards did not result in comparable or even major improvements in living standards for most, or even GNP, in West Africa.  We can say of the impoverished societies in East Asia that much of the explanation might be that they were not included in this globalization; clearly, that explanation does not hold for West Africa (and, I suspect, for some sub-Saharan East Africa as well).

This also ties in with an observation I have had in much other recent reading as well:  countries that wind up in an unequal economic relationship in which they become “one-trick ponies” dependent on things such as gold or coffee or bananas typically don’t fare as well in the long run, as the value of these is much more volatile and prone to long strings of bad luck, and often is superseded as tastes or technologies change.  So Argentina with its specialization in beef, Latin and Central America with its colonial focus on gold and silver, Puerto Rico with its history of specializing in whatever the US felt was its proper commodity, West Africa for slaves, El Salvador with switching over to coffee production and then finding it could no longer provide subsistence agriculture for its population, not to mention the great difficulty in the US before about 1815 in breaking out of its unequal “enforced commoditization” relationship with Great Britain.  We view countries like Saudi Arabia with its ability to convert oil into a thriving economy as the norm, whereas they should perhaps be viewed from a global economic point of view as an exception.

I believe that we should perhaps view this kind of almost-zero-benefit unequal relationship as a fundamental feature of capitalism – because in many of the cases cited, the workings of trade and capitalism were proceeding to some extent independent of government action.  We have congratulated ourselves on the rising tide of capitalism floating the boats of all nations willing to participate in global markets on capitalistic terms – if we are talking about countries producing computer chips, perhaps this is so; if oil, pace Venezuela, the picture is very mixed; if coffee, it seems not to be true.  And the danger of capitalism is that, once a country commits to a particular narrowing of its economy, it may become harder rather than easier to recover from having the wrong product to export.  

I find this to be a sobering thought.  It suggests that rather than demanding a country or region fit into the needs of capitalism, sustainable economics will require that capitalism fit the needs of the country: e.g., diversified, sustainable agriculture to be enforced as the cheapest long-run product.  It also suggests that a world economy that is a mix of governmental technocratic command-and-control and capitalism will actually do better in some cases than a capitalism-focused economy.  Certainly Sweden suggests so.

Analysis of Bowles/Cardin:  Economics as a Branch of Sociology

Over the last 10 years, the failures of many economists in the face of the Great Recession have led to calls to fundamentally rethink economics as a discipline and as it is taught.  The recent white paper by Bowles and Cardin represents a comprehensive way that strands of economics that are presently treated as patches to economic models can instead be viewed as the essentials of a different way of looking at economics and teaching it.

Again, it is worth quoting the abstract:  “new problems now challenge the content of our introductory courses:  these include mounting economic disparities [income and wealth inequality], climate change, concerns about the future of work, and financial instability”; to which I would add that these also challenge the effectiveness of present macro- and micro-economics in guiding the analyst and decision-maker.  What I believe the introductory textbook cited does is to place existing but under-used “tools” at the center of economic analysis – specifically, “strategic interaction, [operations of markets in cases of] limited information, principal-agent models, new [real-world] behavioral foundations [that can determine what economic models best fit real-world data], and dynamic processes including instability and path-dependence.”  

By using word-frequency analysis, Bowles/Cardin establish clear differences between this and two previous generations of economics introductory textbooks as a proxy for the economic linguae franca of our world, the two previous generations being Samuelson’s post-WW II textbook and the recent textbooks of Krugman/Wells and Mankiw.  In other words, the new textbook and the new approach to economics really are in some sense fundamentally different.  

I would argue that the differences derive mostly from this:  the tone and organization of the new textbook really treat economics as a branch of sociology.  That is, they start with an analysis of economic group behavior as it shows up in current issues, not with a model of economic processes that then attempts to shoehorn in real-world data by assumptions such as rationality and self-interest.  The result is a stance that asks where government regulation, command-and-control, operation outside the economy, and more unfettered markets are appropriate, rather than a treatment of the first four as patches to assumed (but rarely if ever achieved in the real world!) perfectly competitive “free” markets.

Here’s a (to me, startling) example of the new thinking:  “it is impossible to write enforceable contracts for worker effort in an information-scarce environment,” so “firms will set wages so that there is always a cost of job loss for workers [i.e., a little higher than they might, so that workers clearly have an incentive to work because they care about their relative income when laid off or in another job] … As a result, there is involuntary unemployment at the equilibrium of the labor market.  This is not … a deviation … caused by … wage rigidities, minimum wages, monopsony, or unions … the intersection of demand and supply functions does not exist and is [replaced] by the Nash equilibrium of strategically interacting principals (employers) … and agents (employees).”  We’re not on Wall Street anymore, are we, Toto?

Implications of Both

It seems to me that both Green and Bowles/Cardin share one suggestion about the future of economics:  It is no longer adequate to see capitalism as the answer to everything, to view it as everywhere superior to the alternatives, now and in the future.  Rather, both suggest that we are dealing with a world in which, historically and now, government, capitalism, command/control, and non-economic activity are necessary parts, all of which must be viewed as operating in more and less effective ways than the others in both the short and the long run.
In particular, I view this as a challenge from economics to that peculiar libertarian dream, of combining little or no government with “free” markets.  What Green and Bowles/Cardin are saying is that capitalism alone will lead to bad outcomes, if not to a reinstitution of (poorer) government by the capitalist in his or her own interests.  I view bitcoin/blockchain as a direct confirmation of this:  the ideal of self-regulating contracts, money, and markets simply leads to inefficiencies, greater imbalances between principal and agent, theft by hackers, and Ponzi schemes preying on the limited information of investors.  

But I also gain hope from both of these texts.  If there is a hope of sustainable economies in the future, it begins with placing the cart of capitalism behind the horse of sustainability, and accompanied by the carts of government, our own personal and societal efforts, and WW-II-like command/control of parts of the economy, at least in the short run. 

It may not be the Grand Unified Theory of Economics, to replace what was smashed in 2008.  But at least, for the first time in a long, long time, we might be beginning to say that what economics teaches us reflects fairly well what we see with our own two eyes in the real world – the altruism and its benefits, the self-centeredness and its costs, less obscured by frantic handwaving and theories.

Final note:  in rereading this, I find I have underplayed the role of innovation/technology in the “new economics”.  For those curious about this, I suggest they sample the CORE introductory economics textbook referenced above, available online.

Joe Romm’s “Climate Change - What Everyone Needs to Know”, Second Edition: Maybe the Best CC Book Right Now

Disclaimer:  I am now retired, and am therefore no longer an expert on anything.  This blog post presents only my opinions, and anything in it should not be relied on.
Just a brief note after my previous post.  I have just finished “Climate Change”, and imho it may be the best book for the general reader trying to get up to speed with the latest science and what’s going on with climate change mitigation and adaptation. 

It’s in the format of posing questions and then answering them, which can clarify what you’re really discussing in a section, but can be a little confusing when you’re trying to follow the overall argument.  Not too confusing, tho’.

As can be seen from my previous post, the only really new things in it for me that mattered were around the latest findings on permafrost, methane, and the like.  But Room is surprisingly good on energy efficiency and hydrogen-powered vehicles (a wasted section, since it becomes clear early on in the section that they’re not worth considering in any real depth unless a technological breakthrough occurs).  Moreover, his cautionary notes on biofuels, carbon capture and storage, and nuclear power go beyond the usual discussions.

It’s not light reading; but it’s not tough slogging, either.  I suggest giving it a try.

Putting an Upper Bound on Climate Change: Permafrost

Disclaimer:  I am now retired, and am therefore no longer an expert on anything.  This blog post presents only my opinions, and anything in it should not be relied on.

When trying to figure out the most likely rate of global warming in our “business as usual” society, I always go back to that amusing quote from the movie version of Tolkien’s Fellowship of the Ring:  “Are you scared?  Not scared enough!”  The reason I remember this is that up to now, all of our scientific models of how climate change will play out over the next 100 years or so have consistently underestimated the rate of warming, not to mention the rate at which weather extremes have become the “new abnormal”.  And the reasons for this underestimation in the scientific community, from what I can tell, are (a) conservatism (even though the modeler may know that an effect will add to global warming, until the effect can be bounded with 95% likelihood in a positive direction it is assumed to have neither positive nor negative effect) and (b) lack of knowledge (for example, for a long time, the effect of increased cloudiness on global warming was not clearly understood).

Over time, these certainties and uncertainties in models have tended to be sorted out into the categories of Donald Rumsfeld’s pernicious classification:  knowns, known unknowns, and unknown unknowns:

1.       The knowns are now, effectively, all those direct effects (e.g., the direct effect of CO2 and methane on global warming) and feedback or “knock-on” effects (e.g., the effect of release of black carbon by wildfires on decreasing Arctic albedo, where global warming from CO2 increase causes increased wildfires, which causes black carbon to fall on snow and ice, decreasing Arctic albedo and hence causing more Arctic warming).

2.       The known unknowns are those effects that we know will play a role, but which are not incorporated in models because we don’t know the extent of the role they will play.  Of these, perhaps the largest ones are (i) melting permafrost and (ii) methane (CH4) releases other than from permafrost melting, including methane clathrates, release of methane locked in land and ocean repositories, and release of methane from human action, including cow emissions and natural-gas processing emissions.

3.       The unknown unknowns are, obviously, effects that we probably can’t anticipate until they happen.  We can, however, take a guess at them by looking at the relationship between CO2 atmospheric emissions and global temperature during the last two major rises in CO2 – 250 million years ago (mya) and 55 mya (the Paleocene-Eocene Thermal Maximum, or PETM, also known as “hell and high water”).  If known unknowns turn into knowns, then the difference between what our models tell us will happen and what past experience suggests is probably due to unknown unknowns.
  

If we can turn the known unknowns into knowns, there appears to be a reasonable prospect that the revised models will track with past PETM (and other) experience, which would mean that the unknown unknowns probably don’t have a significant impact on global warming one way or the other.  In fact, the only remaining known unknown upside to be accounted for might be the fact that we are accelerating carbon emissions at a far greater pace than they have ever increased before.  The usual thinking is that this may speed up the process of actual global temperature warming, (e.g., in our case, a doubling of atmospheric carbon since 1850 should lead to a 2-2.8 degree C temperature increase in the next 100 years, and a total 4 degrees C temperature increase over the next 1000 years, rather than a 1200-year gradual doubling leading to an increase of 1.3 degrees C by 100 years from now, but with the same total 4 degrees C increase at the end), although it is possible that our rush to emit carbon will trigger unknown unknowns that will lead to an even greater rise in temperature at the end of each doubling.  In a nutshell:  with permafrost and methane accounted for, we would begin to see a plausible upper bound for the amount of long-term global warming from increased atmospheric CO2 and related greenhouse-gas emissions.

In long-ago posts, I said that research seemed to suggest that increased methane emissions would not deliver a major boost to global warming.  Without going into horrendous detail, I saw the research as suggesting that if even if methane clathrates, sea-floor methane, and permafrost methane suddenly started rising into the atmosphere a very high rates over the next 100 years, it was still unlikely that methane would achieve “saturation” in the atmosphere, which would cause methane to stay in the atmosphere much longer and therefore have a much greater warming effect – perhaps as much as 1 degree F while it lasted.  Nothing in the second edition of Joe Romm’s “Climate Change:  What Everyone Needs to Know” (summarizing findings as of early 2018) suggests that this scientific consensus has changed.

And so, I would argue, getting at the likely effect of melting all the permafrost gives us a reasonable shot at an upper bound for the most likely effects from “business as usual” increases in carbon emissions.  Or, as I like to say, we may finally know how scared is scared enough.

New Findings on Permafrost

Only nine years ago, it wasn’t clear that permafrost melting was happening yet.  Now, it’s not only clear that it’s happening, it seems to be happening faster than anticipated.   So a plausible upper bound for global warming is increasingly seeming more like a “middle bound” – the most likely case – for business-as-usual global warming.

Here’s a back-of-the-envelope SWAG at the effects of full permafrost melt.  According to “Climate Change”, there are 1.5 trillion tons of carbon locked in the world’s permafrost.  Studies cited in CC also suggest that for each 90 tons of permafrost carbon released, atmospheric carbon goes up about 60-80 ppm.  Thus, total melt means about 1000-1333 ppm of added atmospheric carbon.
 
The effect on global warming then depends on how fast it happens and what else is going on.  More specifically, if melt is fast, then most of its effect falls within the first two doublings of atmospheric carbon.  Thus, very loosely, with a 2 degree C direct effect of non-permafrost added atmospheric carbon on temperatures, we are talking about somewhere around a 4 degree C direct effect of total permafrost melt.

But direct effects of carbon are not the only effects.  A significant proportion of the carbon in permafrost will almost certainly be emitted as methane (CH4), not carbon dioxide.  While much of this will eventually turn into CO2 in the atmosphere, the rise in per-decade atmospheric methane during quick permafrost melt can add up to another degree C to warming over centuries-to-millenia time periods, because methane can be up to 86 times as powerful a greenhouse gas as carbon dioxide.  And the lack of snow cover and increased vegetation associated with the peat bogs likely to be a result of permafrost melt mean a shift in albedo that, to my mind, should significantly up global warming as well.  In sum, aggressive total permafrost melt seems to me at first glance to result in an average 4-6 degrees C of global warming for at least the next 1000 years – and, considering the unknown unknowns, that may be conservative.

It should be pointed out that if we are effective in ending business-as-usual global warming in the near future, much less of the permafrost will ultimately melt.   At another SWAG, we may have locked in melt of 5% of permafrost already (the result of non-permafrost feedbacks adding 0.5 degrees C to the temperature henceforward plus the effects of additional heating from initial permafrost melt).  The rest is still in play.

Glimpses of an Upper Bound

What strikes me about this estimate (4-6 degrees C) is that it seems to fit in more nicely both with the experience of past catastrophic global warming and with recent Hansen papers trying to set an upper bound.  In the PETM, carbon ppm started at about 1000 and apparently went up to about 2000, but the temps seem to have gone up 6 degrees C in the process, 4 degrees more than direct atmospheric carbon effects can explain.  One recently raised suggestion is that elimination of stratocumulus clouds, which should thin out as air temps get warmer, can add 8 degrees C to global warming.   But this is not likely to take effect until well beyond the 1000 ppm level, below which aggressive permafrost melt plays its major role.

In trying to square the PETM with the likely direct effects of atmospheric carbon, Hansen conjectured, iirc, that each doubling of atmospheric carbon would lead, without human interference, to a little more than 2 degrees C of direct effects plus a little less than 2 degrees C of feedback effects, for a total of 4 degrees C.  But the feedback effects he identified only seemed applicable to the first doubling (to 550-odd ppm), and the temps in the PETM seemed too high, imho, for a 2000-ppm atmospheric carbon level.  Some combination of permafrost melt and cloud thinning, with permafrost melt playing its major role before 1000 ppm (at the time of the late Cretaceous global warming 11 million years before, with loss of sea ice and therefore probably loss of permafrost) and cloud thinning after, may therefore explain some of the PETM warming (whether it played a role in the global warming/mass extinction 250 mya, which involved a super-continent with no extreme north or south land, is not clear).

This also squares with another Hansen paper (iirc). In it, he argues that using up most of our present fossil fuel reserves will lead ultimately to 16 degrees C/30 degrees F average warming, or 30 degrees C/54 degrees F average warming in the Arctic and Antarctic.

All of the above statements contain large fudge factors, of course, and can be and are argued over.  However, I do now believe it is much more probable now that something like this upper bound is in store for us, if business as usual continues indefinitely. 

Implications for Armageddon

With all of the above in mind, I like to think of the worst as four stages – horrible, catastrophic, apocalyptic, and decimating, the first three corresponding to doublings of atmospheric carbon, and the last comprising only feedback effects.  Aggressive permafrost melt gives the second and third stages, which have yet to arrive, a similar warming effect over time to our first stage.  And that arbitrary classification leads to a couple of assertions:

1.       Each stage is much worse in its effects than the previous one; and

2.       Each stage becomes harder to prevent or ameliorate than the previous one.  In a sense, each stage adds momentum and size to the downward rolling snowball, because (a) new feedback effects are triggered, like permafrost melt and Arctic/Antarctic ice melt, (b) saturation effects start occurring, like inability of the ocean to store oxygen or saturation of atmospheric methane leading to longer stays in the air, and (c) our ability to mitigate is increasingly hindered by having to undo greater  amounts of now-inappropriate fossil-fuel infrastructure and optimized-for-the-wrong-temperature energy-inefficient dwellings.

      And that is why I disagree with both the optimists and pessimists.  Yes, failure to undo business as usual is rife in the air.  Yes, we may well have effectively crossed the boundary into Stage 2, with horrible effects of climate change already locked in.  Yes, the ultimate end of Stage 4 may well be the decimation of the human race and the rest of the natural world.  But until 100 or 200 years from now, we still have the ability to break utterly the cycle of business as usual, harder though it gets as time goes by.  And therefore every setback in our quest demands not despair but a fiercer effort, more confrontation of the guilty, and greater demands for even more to be done.

It’s like a crooked poker game.  Yes, right now it’s the only game in town, and yes, right now you can’t win or fold, just keep on losing.  But the game will end, and your job is to lose as little as possible, as the stakes go up and up, so that when the game is over you may have lost your heart’s desire but you will not be an indebted slave for life, or killed because you couldn’t pay your debt.  Or most of the effects may fall on your great-great-grandchildren; but they’re still the same shattering effects.  On everybody.

Oh, and one extremely small hopeful note:  it seems to me that to avoid business as usual resurfacing at any time over the next 1000 years, we will have to change fundamentally.  To sustainability.  To a method of living that almost certainly will not destroy the remainder of humanity.  Stage 4 will be as bad as it gets.

And so, hopefully, understanding the effects of permafrost and having a likely upper bound means you are scared enough.  Absolutely, totally scared stiff.  With decimation staring you in the face.  And so, said the psychiatrist in Portnoy’s Complaint, now ve may perhaps to begin, yes?