Economists cannot predict the future
For those of you who have not seen this presentation given at the American Association for the Advancement of Science humor session earlier this year, I highly recommend it. Of all the posts I’ve seen on the Gristmill on the subject of economics, this one by Sean Casten most closely reflects my views.
In this post, Jerry Taylor from the CATO Institute tells us about the worst case scenario from a study done by Dr. Martin Parry, the lead author of the most recent IPCC Working Group on climate change impacts. According to results of this “computer run” eighty years from today, average incomes will have increased somewhere between five and 50-fold, and the land needed for agriculture will be reduced by half (along with deaths from hunger, malaria, and coastal flooding). Are we talking about the same Dr. Parry who said the following in September?
“Mitigation has got all the attention but we cannot mitigate out of this problem. We now have a choice between a future with a damaged world or a severely damaged world.”
Conservative worldviews have their place in that they can temper the excesses of liberal worldviews. Remember that death squads can be left or right wing. Condoleezza Rice owes her career to liberal ideals, although I doubt if that thought has ever occurred to her, and I’m sure it has never occurred to her boss.
If Taylor is right that we should make no attempt to blunt global warming, then Gristmill is the equivalent of a theological forum on angelology. But don’t lose any sleep over it. By definition, conservatives have a strong propensity to champion whatever the status quo recently was, even though that status quo continues to change thanks to those damned bleeding heart liberals. Conservatives lag a few years or decades behind. They are moving along on schedule, no longer denying that the Earth is warming, or that the warming is caused by human activity. The only constant in modern human culture is change. I certainly hope that humanity is in much better shape by 2085, but if so, it won’t be the result of successfully protecting the status quo. Few, if any, of the assumptions used in that computer run he alludes to will have panned out. If our future improves, it will be the result of ideas not yet envisioned. And trust me: without the contribution of liberal minds, tempered by conservatives, that isn’t going to happen.
There was much in his post that I agreed with. But I’d rather talk about those things I did not agree with.
[The] … so-called Austrian school of economics … contends that economic cause and effect is so difficult to isolate that the empiricism embraced by most modern-day economists is a practical fantasy.
I rarely use the phrase “so-called.” It tells the reader, “I think the following is bullshit.” Although, it does look like these economists from the Austrian school are badly outnumbered by the so-called Chicago school of economists. Personally I’m amazed that there are any of the Austrian school left standing. Economists who admit they can’t untangle cause and effect are going to be rapidly outnumbered by those who claim otherwise.
Strictly speaking, no economist would contend that “infinite growth of some meaningful quantity [is] possible in a finite space.” If nothing else, infinite means forever, and someday, the universe will likely either collapse upon us or thin out to such an extent that life will cease to exist … but to know whether an economist would agree or disagree with Michael’s proposition requires us to be a bit more precise about what time period we’re looking at and what our definition of “finite space” might be.
Duh (shorthand for “No shit, Sherlock,” or “that is a common and unenlightened observation, sir”)! This is one of the many beauties of blogs. You can say things like that without fear of losing your paycheck or credibility (i.e., you can’t squeeze blood out of a turnip). Also, I think it probably goes without saying that the time frame is the next half century and the boundary is that of the Earth’s atmosphere. The answer is a dodge. More specifically, it would be useful to know when this growth will end. Economists would give their right arms to be able to answer useful questions like that. This would require knowing with precision “when” things will happen. You don’t need to be an economist to predict a stock market will one day crash, but nobody, economist or not, can say when it will crash. Jim Manzi, CEO of an applied artificial intelligence software company sums it up in this post when he says “Believe it or not, I am currently writing a book on the limitations of econometrics in making reliable predictions for humans systems. I am acutely aware of the limitations in our ability to predict.”
The widely held belief that the people of Easter Island were devastated by a natural resource crash induced by economic institutions that did not recognize the natural limits to economic growth has recently been shown to be thoroughly incorrect. For instance, see this study from Prof. Terry Hunt, published this year in the Journal of Archeological Science.
This is just a research paper with its attendant hypothesis. To say that this paper has shown the predominant hypothesis “to be thoroughly incorrect” is really stretching things. But let me give this researcher the benefit of the doubt and assume he (and others who share his view) turns out to be right in this case. To use this as proof that human cultures have never collapsed or are incapable of collapse as a result of resource limitations within their given boundary is disingenuous.
Examples abound. It is suspected that the collapse of the Anasazi culture and the ensuing cannibalism was the result of dry weather returning to the bounded area they claimed as their own. A state of overpopulation (that term everyone confuses with population density) can be initiated or relieved by any number of variables. Like lots of other definitions, the definition of overpopulation requires a boundary. Cultures are also typically bounded. Things like oceans or mountain ranges can bound them, but most often they are bounded by competing cultures. In the case of Easter Island, it was an ocean. Any number of things — a drought, a plague of locusts — can initiate a state of overpopulation within a boundary. The state can be relieved only by changing the ratio of people to resources, or in the case of a fenced African elephant game park, the ratio of elephants to resources. Look around the planet and you will find ample evidence of landscapes irreversibly degraded via unsustainable use by people. The populations in those places crashed as a result, typically remaining far lower than they were before the natural resources were depleted.
Ask the authors of the Club of Rome reports. Or Dennis and Donnella Meadows. Or Paul Ehrlich. They — and many, many others — spent much of their careers arguing that scarcity would soon doom economic growth, even going so far as projecting actual dates for decline events. They have been proven wrong time and time again and have actually lost concrete bets with those holding the opposite opinion.
Yes, a story told for the 10 millionth time. Note that they lost those bets only because they picked time frames. Note, as I mentioned above, that economists know better than to pick time frames because by doing so it would become painfully obvious that most of their theories are not predictive and are therefore of limited usefulness (the so-called Austrian school). How are the prices of metals doing of late? Just curious.
Now, that’s not to say that past will always prove to be prologue (that is, the boy who cried “wolf!” was eventually correct in the parable), but it is to say that anyone who does not treat “Book of Revelation” predictions about the future lest we stop our sinning ways with some degree of skepticism has been living under an ideological rock.
When you look at the archaeological record of all the cultures that have come and gone, you have to conclude that an apocalypse has occurred countless times in countless places. It just has not occurred all at once for an entire planet … yet, at least as a result of upright walking primates outstripping their resources or throwing the climate balance of an entire planet out of kilter.
One shouldn’t mention Paul Ehrlich without also mentioning his nemesis, the late Julian Simon, advisor to Ronald Reagan. The gag rule, first put in place by Reagan, removed by Clinton, and reinstated by Knuckle Head, was supported by Simon’s contention that the more people you have on the planet, the better off people are (i.e., 40 billion is better than 2 billion). Hey, I’m game. From Poison Darts — Protecting the Biodiversity of Our World:
Part of Simon’s philosophy was that human beings are creatures of unbounded creativity. In a free market system, entrepreneurs seeking profit will always compensate for shortages of things like copper, wood, or oil through new innovations. If Simon was right, then arguments against roping off chunks of our ecosystem because we need the resources inside them are moot. We do not need the resources found in the National Arctic Wildlife Reserve or old growth forests to maintain healthy economies. This gives conservationists a much needed platform to protect what is left, allowing humanity to get on with the business of finding alternatives, including ways to feed more people without consuming more of the planet.
And from a relevant review of the book:
I therefore decided to be optimistic, and place my faith in human ingenuity, like my father’s hero Paul Simon, despite mounting evidence that the Ehrlichs were right in all but timing.
One of the many encouraging points that Russell makes in this book is that both Simon and the Ehrlichs were right, and what is more, Simon’s point about the potential of human ingenuity to overcome problems means that one plank of Russell’s solution — creating well protected reserves of bio-diversity — simply gives humans the opportunity to demonstrate that ingenuity sooner rather than later.
And for anyone wanting to take this opportunity to try to stick the Neo-Malthusian label on me, good luck. Labels don’t stick to me. Global warming was probably responsible for at least one of the past great extinction events. To suggest it can’t happen again would be naïve. To suggest that the growing number of creatures on the red list is not related to our growing population would also be naïve. Despite the gag rule, up to 40 million pregnancy termination procedures are performed annually around the world. We can thank conservatives, particularly, conservative religionists for much of the planet’s degradation and for vast amounts of human suffering by hobbling women’s reproductive rights, particularly those of the powerless, the poorest.
The attempts by several first world nations to coerce their women into having German, French, Russian, or Japanese babies, instead of creating functional immigration programs to share wealth and reduce global poverty, are a prime example of human nature at work.
If you take the literature regarding the impact of climate change on human beings seriously, then you can make a very strong argument that more people are harmed than helped by significant greenhouse gas emission controls and that “human decency” dictates resisting the “act now” agenda …
Your conclusion is valid only if the planet manages to dodge all potential tipping points and all we see is a very slow, gradual change in weather patterns and rising sea levels. I don’t think that is going to be the case because the climate models to date are grossly underestimating the rate of changes. Global warming may well have been the cause of one or more of the planet’s past extinction events. The genetic record clearly shows that the human species barely escaped extinction in the last major climatic shift. I doubt that this debate would exist if we were rapidly heading for another ice age instead of a warming period (one not seen on this planet in 50 million or so years). Global warming: so cozy, so warm.
It is a possibility that overzealous attempts by liberal types to fix the problem could make matters worse, which I suspect is Taylor’s main concern, which I share. We need to make sure that does not happen but we also need to take immediate steps to reduce greenhouse-gas emissions.
Personally, I’m hoping a meme will spread around the planet that will cause consumers to seek low carbon footprints, as I suspect happened when women around the world began choosing smaller families. And please don’t tell me that can all be explained by the economic transition theory, which changes daily, fails to explain numerous exceptions, and stereotypically has been cobbled together after the fact.