Upside down economics

[The2ndWheel]

http://www.energybulletin.net/32718.html

In his collection of essays entitled Earth In Mind David Orr introduces us to one William Nordhaus, a Yale economist who has been puzzling over the economics of climate change. The question Orr asks is whether Nordhaus is puzzling over the right things and in the right way. Orr is clearly interested in Nordhaus's views because those views very much represent the way most (but certainly not all) economists think about the natural world.

Back in 1990 in a one-line preface to an article by Nordhaus in The Economist entitled Greenhouse Economics: Count Before You Leap, the magazine's editors summarized Nordhaus's overall point as follows: "Careful cost-benefit analysis, not panicky eco-action, is the right answer to the risk of global warming." It's a statement that few would disagree with. Where the disagreement comes is how to tote up the costs and the benefits.

Of special interest are Nordhaus's views concerning which sectors of the economy are likely to be hit hardest by global warming and what effect that will have on society at large. In the 1990 Economist article he wrote:

Studies of the impact of global warming on the United States and other developed regions find that the most vulnerable areas are those dependent on unmanaged ecosystems – on naturally occurring rainfall, run-off and temperatures, and the extremes of these variables. Agriculture, forestry and coastal activities fall into this category.

Most economic activity in industrialized countries, however, depends very little on the climate. Intensive-care units of hospitals, underground mining, science laboratories, communications, heavy manufacturing and microelectronics are among the sectors likely to be unaffected by climatic change.

[unpossibles]

1. I would think that the vulnerability of argiculture

would make it effect those areas "unaffected" by global warming. Or do doctors, nurses, miners, scientists, etc. not have to eat?

[The2ndWheel]

2. A few lines later in the article it goes...

"Economic studies suggest that those parts of the economy that are insulated from climate"

We just simply have to completely insulate ourselves from the climate.

[Trillo]

3. Isn't civilization grand?

The charts clearly explain the mental disconnect between 'industrialized' countries, and native peoples that remain in a few areas.

[GliderGuider]

4. The discussion of Liebig's Law and efficiency is exactly on point.

It all comes back to resilience. As complex adaptive systems grow they gain productivity, interconnectedness and efficiency, while losing resilience. Resilience is the ability to withstand external shocks without having the system transition to a new state. Our global industrial civilization is the largest, most complex, most productive and efficient system ever to exist on this planet.

For such a system a disruption in the supply of an essential resource is the most likely source of such a shock. Liebig's Law of the Minimum implies that you should look to the critical resource that is in shortest supply as the most probable locus of such a disruption. For our global industrial civilization that means oil, and through oil the food supply.

So here we have an enormously productive, hyper-efficient, extremely brittle system whose crucial resource is about to start declining. Worse than that, it will start declining unevenly around the world as poor regions get bid out of the oil market. Being bid out of the oil market means that supply disruptions are inevitable in these regions. Given the interconnectedness of the global "economic ecology" such disruptions will cause shocks that will cascade to parts of the system that were not directly affected by the initial disruption.

The other two fronts of humanity's Perfect Storm, climate change and general ecological decline, will make it that much more likely that such cascades will occur, and that much harder for humanity to cope with the ruptures that result.



This diagram contains a crucial insight as to why our civilization is in an unstable situation. We're like a Chinese plate-spinning acrobat balancing a stack of crockery on top of a broomstick. How long can we stay both good and lucky?

[phantom power]

5. That GDP diagram is really something.

It's like a direct projection of Kauffman's fourth-law into economic space.

[depakid]

6. Nordhaus obviously doesn't know the first thing about systems science

Not surprising for an insulated economist. People like that are hard to match in terms of arrogance and stupidity.