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Double Denial:Failure of Economics, Collapse of Ecosystems

June 28, 2011

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Paul Gilding:

At some point you have to recognize that the trends are now clear. So yes, we are seeing extreme weather and we have before. But the extreme weather is more extreme. It is coming more often. Scientists are now saying very clearly that the average temperature is increasing, that the frequency of a variety of types of weather is increasing, and the severity of storm surges and the like is increasing.

Now of course, one can always argue that this is an unusually intense period in history, but you have to say that when virtually every scientific body in the world is saying the same thing, which is “It is changing, we are the major cause of it,” then, perhaps they’re all wrong. It’s always a possibility. But you have to be a very brave person to say that we’re going to ignore that until we are absolutely certain, knowing that absolutely certain is far too late to respond.

I think we’re quite a long way along actually. I think we haven’t recognized it. I think if you look around, the signals are now pretty clear, in terms of weather, but also — really importantly — in terms of the economy. We are now seeing what happens when you operate the economy past the limits of the system — in our case, the eco-system. The planet can no longer support an economy this size. And I think we’re well into the process. We haven’t recognized it yet, but we will as the evidence mounts.

I think we’ll be aware of it and talking about it within a few years. We’re no longer talking decades, we’re talking this decade.

If we’re honest as environmentalists, we have to face up to the fact that people face up to economic pressures much more strongly that they respond to environmental impacts. And I think that, if you like, the ironically good news in the bad news, is that now seeing the impacts of hitting the limits of growth, as I would call it. Hitting the limits of the eco-system and resource capacity and its availability for our economy.

We’re seeing that impact on the economy. We’re seeing commodity prices across the board increase. We’re seeing record food prices. We’re seeing very high oil prices again. And that’s what you’d expect the system to behave like as you hit the limits. So I think we are now seeing and will see a lot more dramatic economic impacts of these issues. And that’s when we’ll start to pay attention.

Paul Gilding is past director of Greenpeace and current author of The Great Disruption: Why the Climate Crisis Will Bring About the End of Shopping and the Birth of a New World.

Gilding is likely wrong about the short-term commodities prices, but right on the broader point. In Demand Side’s view, prices are now responding to casino dynamics, being built up by cheap chips and now falling because if they can’t rise any more, they fall in a bubble. Prices will not bear the burden of scarcity because incomes will. Rampant unemployment reduces demand, not by reducing desire or need, but by reducing the money incomes needed for the markets to see demand.

Simon Kuznets won the Nobel Prize for something worthwhile, not always a requirement for that prize. Kuznets took Keynesian economics into accounting. He produced the National Income and Product Accounts, NIPA, which is alive today in the monthly foofaraw around the release of the GDP number and net exports and personal consumption and savings and deficit and so on. Kuznets did the groundbreaking work in the 1930s and 1940s.

That work has not been updated or brought into the world of personal well-being or climate crisis or resource depletion. Consequently we are running a race in the wrong direction, expecting that more of the current effort will get us there faster. In fact, our speed is not on the plus side, it is on the minus side.

I should drop in here some mention of Demand Side’s Net Real GDP, an idiosyncratic and rudimentary calculation. Net Real GDP is Real GDP minus Real Federal Deficits. It is what GDP would be without government spending in excess of revenue. Straight up net amount. No multiplier adjustment, although certainly there would be knock-on losses from such actions. Of course, what it shows is consistent negative numbers, negative net growth, or in layman’s terms, contraction. So?

How different would the political dialog be if we had a balanced budget, but 8, 9, 10 percent less each year in incomes and output? It would be another debate. Nobody would even frame the thought that government spending is costing jobs. And this is just a simple twist to the actual numbers. The accounting for the economy, the National Income and Product Accounts, need more fundamental change.

Later in this discussion with Tom Ashbrook, Gilding makes that point that population growth will add 30% to demands on the world economy by 2050. Growth under the assumption that material standards of living will expand at current rates, people will buy more stuff, project a 300% addition to demands on the world’s economy. Gilding’s message: It’s not going to happen, because it cannot happen. Chaos and starvation and conflict and disruption will ensue to a greater or lesser degree until we scale down our need for stuff to a sustainable level.

That interview is the podcast of the week. Link online. DemandsideEconomics dot net.

The innovation that is needed is not how to produce that much stuff in some tricky new way, but in how to adapt and innovate increased well-being from less material output. Demand Side — and others — call this “development” as opposed to “growth.”

Accounting for resource depletion and eco-system degradation — call it the capital consumption of the Commons — produces a conservative statistic of 150%. We are operating our economy on one and a half times its sustainable level. Great. There’s some Yankee know-how. No. That extra 50% is being taken by ignoring that we are taking it. It is being taken not even from our future, because the process of taking it is damaging our future beyond the point of being able to replace it.

The Sarkozy Report, a review of worthwhile adjustments to accounting for the economy, under co-chairs Joseph Stiglitz and Amartya Sen, was produced a couple of years ago. We did a series here on Demand side. When the crisis hits — the ecosystem crisis — new accounting will be reported. Why not now?

I’m sure it is, and we don’t hear it.

Demandside is focused — as are most economists — on the current short-term economic mess. The short- and medium-term environmental and global poverty mess is largely ignored by us as it is by others.

But this is the Third World War.

Gilding makes the point that the world ignored the looming threat of Nazi Germany long past any reasonable point, as long as it could, just as we are sparing no effort to ignore the climate and natural systems crisis. Parenthetically, the violent and extreme weather is only part of the challenge to a broad range of necessary systems for human survival, but a part that is quite visible and quite difficult to ignore, and so it may change perception as no amount of scientific consensus will.

But when the invasions began, the world responded, and with muscular and determined and effective action. That is what Gilding expects from us when the climate crisis becomes too obvious to ignore. Great. Except that carbon has already dropped its bombs. They haven’t hit yet. They won’t strike in full force for another six, eight or ten years. But when they do, it will make Pearl Harbor look like a string of firecrackers. And the bombs will continue to fall for decades while we are trying to organize. So plan your personal adaptation now. Less, no carbon, personal food sources, whatever.

It is a great failure of economic discussion today that our meters measure the wrong thing and our future is in the opposite direction we are telling people to run.

I want to end by thinking a little bit about this larger question of leadership from economists. We have more than a few, in fact, probably a majority who are not under the thrall of denial, double denial, I guess it would be. Denial of the scale of climate change and denial of the refutation of Neoclassical models by current events. But this consensus of the progressive side has no presence on the screen of public policy. This is a great failure.

Politicians are arguing about inflation and deficits when neither is a problem, and they are doing it with the encouragement of the established interests. Why? The distraction is an effective defense to change. When we engage these discussions we enter political theater. It is like responding to the discredited memes in the comments section of a popular blog. Are you really going to make change by convincing people who think a return to the gold standard or balanced budget amendments are the solutions? Or are you even going to make change by talking to people who agree with you?

So my current fantasy is as follows. A shadow economic policy group composed of substantial voices — more respectable than Demand Side — who propose substantial policies broadly supported by rational economists. Fiscal side, for example, a jobs program, infrastructure spending, taxes on the wealthy or on carbon, closing special purpose tax loopholes, revenue sharing with state and local governments. Monetary policy side: Returning the banking sector to a utility role, ending casino capitalism in whatever ways are most practical.

We calculate the outcomes. The actual vs. the counter factual composed not of doing nothing, but of the projected results of this alternative policy scheme. And we present it in both traditional Kuznets terms, but also in enlightened terms which account for the environment and resource depletion and improvements in health or education or other elements of well-being.

The kicker, of course, is that it is precisely those who can see the failure of economics — the Stiglitzes and Jamie Galbraiths of the world — who can see the real ways out of the eco-system tragedy unfolding, who can appreciate the looming environmental crisis. Stiglitz won his second Nobel for work with the Intergovernmental Panel on Climate Change. That was a Peace Prize.

Because when the full effect of collapse comes in the consumer economy and simultaneously extreme weather and crop failures damage the internal organs of the world’s confidence, there will be a need for an existing well-recognized or at least long-standing alternative schemata.

I mean governments and central banks already look stupid to the intelligent observer of any persuasion. How much less confidence will they inspire when “muddle through” turns out to be “throw gasoline on the house fire?”

All kinds of hysterical demagogues will get traction, and there ought to be some place to go.

This requires divesting this group of ties to a party. In the case of the U.S., the Democratic Party. Participating in political theater is participating in distraction. Politicians will need to attach themselves to the group.

Just fantasy. On my way out of town.

Demand Side is dark until July 25. check on the blog for transcripts of previous shows.

We expect that in the next four weeks there will be big changes in the economic landscape. Fortunately or not, we will be outside the range of broadband. The return will be fun in itself. A Rip Van Winkle moment.

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