Epistemology of a Dying Empire: Can Growth Last Forever?

Recently, Michael Liebreich published an article titled "The Secret of Eternal Growth." I have been mulling over in my head if it is appropriate to spend time discussing one more mishmash of legends, including the one that's by now a classic, the "errors" that the Club of Rome is said to have made with the 1972 report, "The Limits to Growth." Eventually, I decided that it was worth a post, not so much because the post by Liebreich is especially wrongheaded or silly, but because it illustrates one basic point of our civilization: who, and how, takes decisions? On which basis?

In the end, I think we have a problem of epistemology, the question of the nature of knowledge. In order to make decisions, you have to know what you are doing -- at least in principle. In other words, you need some kind of "model" of reality in order to be able to act on it. It was Jay Forrester, the father of system dynamics and the originator of the "Limits to Growth" report who pointed out that, (World Dynamics, 1971, p. 14)

Everyone uses models all the time. Every person in his private life and in his community life uses models for decision making. The mental image of the world around one, carried in each individual’s head, is a model. One does not have a family, a business, a city, a government, or a country in his head. He has only selected concepts and relationships that he uses to represent the real system.

And the big question is where these "selected concepts" come from. My impression is that the mind of our leaders is a jumble of ideas and concepts grafted from haphazard messages that come from the media. Our leaders use no quantitative model to take their decision, only whim and feelings. This is how an idea such as MAGA came about.

The point is that there seems to exist a certain convergence of ideas and concepts in the mediasphere. Somehow, a consensus tends to appear and it is reinforced by repetition. This is how the world's leadership tends to assume the existence of some self-evident truths, such as that economic growth is always good.

The article by Liebrich is a good example of this process. We have an article written by someone who is influential: he is senior contributor at Bloomberg, and also an engineer. What is most disheartening about it is how it is based on half-baked ideas, superficial interpretations, half-truths, and legends. Just as an example, we read in the article that:

. . . a group of concerned environmentalists calling themselves the Club of Rome invited one of the doyens of the new field of computer modelling, Jay Forrester, to create a simulation of the world economy and its interaction with the environment. In 1972 his marvellous black box produced another best-seller, Limits to Growth (iv), which purported to prove that almost every combination of economic parameters ended up not just with growth slowing, but with an overshoot and collapse. This finding, so congenial to the model’s commissioners, stemmed entirely from errors in its structure, as pointed out by a then fresh-faced young economics professor at Yale, William Nordhaus.

Note how Liebrich provides a reference to the "Limits to Growth" book, but none for the supposed "pointing out of the errors in its structure" by the "fresh-faced" William Nordhaus. The reality is that Nordhaus wrote a paper criticizing Forrester in 1973 and Forrester responded to it with another paper, defending his approach. It is perfectly legitimate to think that Nordhaus was right and Forrester wrong, but you can't say that that the purported "errors" in the model are an established fact. I discussed this story in my book, "The Limits to Growth Revisited" and in a recent post on "Cassandra's legacy." Basically, Liebrich reported a legend without bothering too much about verifying it.

There is much more in Liebrich paper that can be criticized in terms of mistakes, personal attacks, misinterpretations, and more (see also another critical assessment by Tim Jackson). But the point is how ideas are thrown into the mediasphere and there they float, to be picked up by human minds as flu viruses flow in the air. Here, Liebreich's thesis is likely to have a certain influence because it is so cleverly presented: basically it tells us that you can eat the pie and still have it. It tells people that humankind can keep growing while reducing its impact on the ecosystem. It is like telling a heroin addict that heroine is good for health and it is OK to continue using it because technological progress will make it possible to get the same kick - or even more kick - from a lower dose. That is what a heroin addict likes to hear, but it won't work in the real world.

The same is true for our leaders and for all of us. We tend to make choices on the basis of what we like, not on how things stand. The sickness of the Empire, in the end, is just bad epistemology.



(h/t Anders Wijkman and Nora Bateson)

Investment as Commitment. Tim Jackson at the Summer School of the Club of Rome in Florence

Tim Jackson speaks at the 1st Summer School of the Club of Rome in Florence, Sep, 2017 (image courtesy of Daniel Reinhardt)

There have been several interesting talks at the Summer School on Sustainability in Florence, but the one by Tim Jackson has been among the most focused and relevant ones. Jackson is the author of the book "Prosperity Without Growth"  (2017) and he goes straight to the core of the problem, which lies in our financial system. We are geared for growth, everything in the system pushes for growth, all the financial structures are rewarding growth. And, as Jay Forrester was perhaps the first to note, economic growth is taking us straight to the Seneca Cliff. 

So, we need to re-examine the basics of our economic system and propose ways to defuse the ticking bomb that we ourselves have created. There is much to be discussed about Jackson's proposals, but one that I noted, in particular, was the concept of "investment as a commitment." I asked Jackson how this is supposed to be different than the current way of investing, and his answer was that, today, investors tend to see the market as a "gamble" in which they may gain or lose; but their main motivation is for big, short-term gains. Clearly, this is not the way that will take us to a saner and safer world. 

The key point of the whole thing, as I see the situation, is in the financial system. If we found a way to divest from fossil fuels and to move financial resources to the transition in the form of renewable energy and the related infrastructure, then there is still hope to avoid the Seneca Cliff, at least in its most brutal form. The question, then, is how to move money to some kind of "investment as a commitment"; investing for something that will last for some time and provide a steady return, not necessarily a spectacular one. 

With Jackson, I discussed the idea of money which steadily loses value with time, or "expires" after a certain length of time. Or also to the old Sumerian idea of "amargi", periodic debt cancellation; a tradition that later led to the Hebrew Jubilee. Possibly, this kind of reforms would lead people to invest in real things. Is it possible? Hard to say. Maybe someone has other ideas? 

The Donut Has a Hole in The Middle: Kate Raworth Speaks at The Summer Academy of the Club of Rome in Florence

Kate Raworth speaks at the 1st Summer Academy of the Club of Rome in Florence, Sep 2017

Kate Raworth is best known, nowadays, for her book titled "Doughnut Economics, Seven Ways to Think Like a 21st-Century Economist." In Florence, she gave a very professional presentation that was very appreciated by the participants. But I remained unconvinced.

The gist of Raworth's idea is that, historically, economics as a science has been shaped in such a way to look like physics; considered by the founders of economics as an example to follow. According to Raworth, this interpretation has distorted economics, making it unable to describe the real world and to do anything to avoid the troubles we are facing, from inequality to financial collapses. 

This is a correct position: economics tends to have an approach similar to that of the physics of 19th century (or even older). It is an approach that works well for simple, linear systems, such as Newton's apple when it falls down. But Newtonian physics cannot describe the biology of an apple, just as it can't describe the behavior of the complex, non-linear system we call "the economy". 

So far, so good: a lot of people are complaining about the shortcomings of the current interpretation of Economics; the problem is what to replace it with. It would seem to be obvious to use the modern approach based on the science of complex systems, sometimes called "biophysical economics", pioneered by the authors of the "Limits to Growth" study of 1972. It is not an easy approach, but it seems to be bringing results. 

The problem with Raworth's book - and with her speech - is that it correctly identifies the problem, but provides no credible alternative. The book is full of qualitative diagrams and discoursive suggestions, but few real world data. Many of the recommendation that Raworth provides are attractive, but they are never quantified, just as the "doughnut" that gives the title to the book. It is a nice diagram, but how to apply it in practice?

As I said, I remain unconvinced about this doughnut idea. It seems to be lacking something fundamental; maybe it is because it has a hole in the middle. 

In the following, I reproduce my previous comment on Raworth's book. 

From "Cassandra's Legacy, June 17, 2017

by Ugo Bardi

Doughnut Economics: a step forward, but not far enough

Doughnut Economics, by Kate Raworth (Chelsea Green, 2017) is an interesting book that goes in the right direction in the sense that it promotes a circular economy, But it leaves you with the impression that it missed that extra step that would have led it to define the goal in the right way. Bridging the gap between standard economics and biophysical economics is still far away.

So, what is this "Doughnut" that gives the title to the book? Initially, I had imagined that it was supposed to be a sort of mandala representing the concept of circular economy. But that doesn't seem to be the case: circular mandalas often represent the cyclical movement of a wheel, but the doughnut doesn't (as, indeed, most doughnuts are not supposed to be used as wheels). Here is how it is represented in the book:

It is described as "a radically new compass for guiding humanity this century." Ambitious, to say the least, but how is that supposed to work, exactly? Maybe I am missing something, but I not sure I can understand why the numerous concepts appearing in the figure should be arranged in a "doughnut."

The problem with the doughnut is not so much understanding why it is shaped like a doughnut, but what it lacks. Look at the outer ring; you will see 10 sectors, all related to pollution: climate change, ocean acidification, chemical pollution, etc. Something is conspicuously missing and it is not a minor element of the overall picture. It is natural resources and, in particular, non-renewable resources (*)

Natural resources, their depletion, and the related concept of "overshoot" are not just missing from the doughnut, they go mostly unmentioned and unnoticed in the whole book. To give you an example, Raworth mentions only once the 1972 study "The Limits to Growth" that was the first to pinpoint the resource problem. In a discussion of less than two pages, I think her position can be summarized by the following statements:

Mainstream economists were quick to deride the model's design on the basis that it underplayed the balancing feedback of the price mechanism in markets. If non renewable resources became scarce, they argued, prices would rise, triggering greater efficiency in their use, the wider use of substitutes, and exploration for new sources. But in dismissing World 3 and its implied limits to growth , they too quickly dismissed the role and the effect of what the 1970s model simply called pollution ... World 3's modeling of pollution turned out to be prescient.... recent data ... find that the global economy seems to be closely tracking its business-as-usual scenario.

As it is often the case in this book, Raworth's statements need some work to be interpreted because they are always nuanced; if not vague, as when she says one should be "agnostic" about economic growth (**). Here, the interpretation seems to be that The Limits to Growth may have been right, but only because it took into account pollution. Instead, its treatment of non-renewable natural resources was wrong because depletion can be completely neutralized by market factors. Raworth doesn't seem to realize that she is contradicting herself, here: if the "business as usual" scenario produced good results in terms of comparison with the real world's economy, it is because it contained depletion as a major constraint. World 3 could also be run in the hypothesis of infinite natural resources, with pollution the only constraint, but the results would not be the same.

That's the thread of the whole book: natural resources are not a problem; we should be worried only about pollution. Raworth doesn't link the concept of the circular economy to recovering non-renewable resources; she proposes only in relation to abating pollution, with the corollary that it also brings about also better social equality. This is not wrong; it is true that a cyclical "regenerative" economy would be able, in principle, to reduce or eliminate pollution. Still, it is curious how the question of mineral resources is so conspicuously missing in the book.

Kate Raworth is described in the book flap as a "renegade economist", but she still reasons like an economist. The idea that the price mechanism will make depletion always irrelevant is old and it goes back to the 1930s, when the so-called "functional model" was presented, stating exactly what Raworth describes. The idea is that market factors will always re-adjust the system and magically make depletion disappear. By now, the functional model is deeply entrenched in the standard economic thought and there seems to be no way to dislodge it from its preheminent position.

The interesting point is that not only economists tend to dismiss depletion as irrelevant. In recent times, the whole "environmental movement" or the "Greens" have taken exactly the same position. All the debate about climate change is normally based on the supposition that minerals, and in particular fossil fuels, will remain cheap and abundant for the current century. If this is the case, it makes sense to propose to spend untold amounts of money for carbon capture and sequestration (CCS) rather than for renewable energy. It goes without saying that, if this assumption turned out to be wrong, the whole exercise of CCS, if it were undertaken at the necessary scale, would turn out to be the greatest resource misplacement of resources in human history, possibly even worse than nuclear energy.

Why is that? As a puzzle, it is difficult to solve. In principle, resource depletion and its negative effects would seem to be easy to understand. Easier than the complex chain of physical factors that leads from the emission of greenhouse gases to disastrous events such as sea level rise, heat waves, hurricanes, and the like. Maybe it is just a question of the lifetime of memes. The meme of depletion started before that of climate change and it is now in its downward trend. Whatever the case, we seem to be locked in a view of the world that misses some fundamental elements of the situation. Where this special form of blindness will lead us is all to be seen. 

Getting back to Raworth's book, despite the criticism above I can also say that it is worth reading for its broad approach and the wealth of concepts it contains. Its discussion on how the science of economics came to be what it is nowadays is, alone, worth the price of the book. Although it misses part of the problem, it may open up new views for you.



(*) You may also have noticed that the concept of "overpopulation" is missing in the doughnut. On this point, Raworth maintains in the text that if people are given the possibility of having a life free of deprivation, they won't reproduce like rabbits - a concept on which I tend to be in agreement; even though its practical implementation in the current world's situation is problematic, to say the least.

(**) The idea of a "zero growth" or "steady state" society would seem to be a fundamental feature of a circular economy, but it is barely mentioned in the book

The shale oil "miracle": how growth may falsely signal abundance

Oil production (all liquids in barrels per day) in the US and Canada. (From Ron Patterson's blog). Does this rapid growth indicate that the resources are abundant and that all the worries about peak oil are misplaced? Maybe not....

Sometimes, we use a simple metric to evaluate complex systems. For instance, a war is a complex affair where millions of people fight, struggle. suffer, and kill each other. However, in the end, the final result is seen in terms of a yes/no question: either you win or you lose. Not for nothing, General McArthur said once that "there is no substitute for victory".

Now, think of the economy: it is an immense and complex system where millions of people work, produce, buy, sell, and make or lose money. In the end, eventually, we think that the final result can be described in terms of a simple yes/no question: either you grow, or you don't. And what McArthur said about war can be applied to the economy, as well: "there is no substitute for growth".

But complex systems have ways to behave and to surprise you that can't be reduced to a simple yes/no judgement. Both victory and growth may well create more problems than they solve. Victory may falsely signal a military might that doesn't really exist (think of the outcome of some recent wars....), while growth may signal an abundance which is just not there.

Take a look at the figure at the beginning of this post (from Ron Patterson's blog). It shows the oil production (barrels/day) in the US and Canada. The data are in thousand barrels per day for "crude oil + condensate" and the rapid growth for the past few years is mostly due to tight oil (also known as "shale oil") and oil from tar sands. If you follow the debate in this field, you know that this growth trend has been hailed as a great result and as the definitive demonstration that all worries about oil depletion and peak oil were misplaced.

Fine. But let me show you another graph, the US landings of North Atlantic Cod, up to 1980 (data from Faostat).

Doesn't it look similar to the data for oil in the US/Canada? We can imagine what was being said at the time; "new fishing technologies dispel all worries about overfishing" and things like that. It is what was said, indeed (see Hamilton et al. (2003)).

Now, look at the cod landings data up to 2012 and see what happened after the great burst of growth.

I don't think this requires more than a couple of comments. The first is to note how overexploitation leads to collapse: people don't realize that by pushing for growth at all costs, they are destroying the very resource that creates growth. This can happen with fisheries just as with oil fields. Then, note also that we have here another case of a "Seneca Cliff," a production curve where the decline is much faster than growth. As the ancient Roman philosopher said, "The road to ruin is rapid". And this is exactly what we could expect to happen with tight oil