Home » Posts tagged 'economics from the top down'

Tag Archives: economics from the top down

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Post Archives by Category

Peak Oil Never Went Away

November 16, 2020

Peak Oil Never Went Away

Do you remember peak oil? It was all the rage a decade ago. Now, almost no one is talking about it. The funny thing is, the problem never went away. If anything, it’s gotten worse.

In this post, I take a deep dive into peak oil. I show you that the peak in the production of conventional crude oil isn’t some distant prospect. It’s already happened. What’s more, the model that correctly predicted this peak suggests that conventional oil production is about to collapse.

Yes, talk of peak oil went away. But the problem didn’t.

Peak oil — A brief history

If you use an exhaustible resource, you will eventually run out. This fact is so obvious that everyone understands it … at least in principle. But in practice, humans are shockingly bad at predicting resource exhaustion. Why? The reason, I believe, is that we don’t understand things that are big.

Here’s an example. Imagine you’re stuck on a desert island with a one-year supply of food. What would you do? You’d probably ration the food so it lasted as long as possible. Now imagine that you had 100-year’s worth of food? Now what would you do? To hell with rationing … you’d probably gorge yourself without worry. This change in behavior is important. Like the 1-year stock, the 100-year stock of food is still exhaustible. But it’s so large that it seems infinite. And so you behave like the resource is actually infinite.

When this behavior plays out in the real world, the results are always the same. We exhaust a seemingly inexhaustible resource — and we do so sooner than we expect. Here are a few examples. The bison of North American were once so plentiful that they seemed infinite. Yet by the end of the 19th century, only a few hundred were left.

…click on the above link to read the rest of the article…

 

Supply and Demand Deconstructed

August 6, 2020

Supply and Demand Deconstructed

Prices are caused by supply and demand, right? So say neoclassical economists. If you’ve bought their fairy tale, I recommend you watch the video below. In it, Jonathan Nitzan demolishes the neoclassical theory of prices. It’s a master lesson in how to deconstruct a theory.

Here’s the 100-word summary. Nitzan shows that the neoclassical theory of prices fails in six ways:

  1. Neoclassical theory hinges on utility that cannot be measured
  2. It relies on demand and supply curves that cannot be observed
  3. It depends on equilibrium whose existence it cannot confirm
  4. It requires but cannot show that demand and supply are mutually independent
  5. It requires but cannot demonstrate that the market demand curve slopes downward
  6. And it must but cannot measure capital and therefore cannot draw the supply curve, even on paper

So what explains prices?

If neoclassical theory is bunk, then what explains prices? Jonathan Nitzan, together with Shimshon Bichler, argues that prices are inseparable from power.

Here’s a window into Nitzan and Bichler’s thinking. Start with what economists call ‘demand’. If you’re going to buy something you must need or want it. But your want isn’t some fixed property of human nature. It’s a product of your social environment. Want can be massaged, even manufactured. That’s why we have advertising. Everyday, corporations shape our wants so that we buy what they’re selling. This means that demand isn’t some function of autonomous ‘preferences’ (as neoclassical economists would have us believe). Demand is actively shaped by corporate power.

Now let’s look at ‘supply’. It makes sense that if people want something that is scarce, they’ll bid up the price. The problem, though, is that scarcity isn’t just a fact of nature. It’s also an outcome of property rights.

…click on the above link to read the rest of the article…

The Paradox of Individualism and Hierarchy

July 31, 2020

The Paradox of Individualism and Hierarchy

In the early 1970s, Geert Hofstede discovered something interesting. While analyzing a work-attitude survey that had been given to thousands of IBM employees around the world, Hofstede found that responses clustered by country. In some countries, for instance, employees tended to prefer an autocratic style of leadership. But in other countries, employees preferred a democratic approach. These differences, Hofstede proposed, were caused by culture.

Today, Hofstede’s work has blossomed into the field of ‘cross-cultural analysis’. It’s a vibrant discipline that looks at how attitudes and beliefs vary between societies. The tools of the trade are simple surveys and questionnaires. But the goal of cross-cultural analysis is ambitious. It aims, as Hofstede puts it, to understand the ‘software of the mind’.

✹ ✹ ✹

Geert Hofstede didn’t invent the idea that culture varies between societies. (That idea is probably as old as culture itself.) But he did pioneer the quantification of culture. Before Hofstede, there was much grand theory, but little measurement. Theories of culture date at least to the Greeks, who were perhaps the first to give culture a name. (They called it the nomos.)1 The modern theorization of culture, however, probably began with sociologist Max Weber.

Like many social scientists, Weber wanted to understand the origin of capitalism. Why, he asked, did capitalism arise in Western Europe? His answer was that Westerners had adopted a peculiar attitude towards work — what Weber called the protestant work ethic. Rather than see work as a chore, protestants (especially Calvinists) saw industriousness as a virtue. This culture shift, Weber argued, was key to understanding the emergence of capitalism. Without the idea that work was a virtue, people would meet their basic needs and then relax. But when work became a goal in itself, the wheels of capitalist accumulation were set in motion.

…click on the above link to read the rest of the article…

Living the Good Life … Without Killing the Planet

July 17, 2020

Living the Good Life … Without Killing the Planet

How can we live the ‘good life’ without killing the planet? My last post on energy and empire got me thinking about this question. We know that human welfare improves as we use more resources. But it’s suicidal for all of humanity to pursue this path. If the whole world lived like Americans, we’d triple our carbon emissions.1 So that’s not an option (not a sane one, at least).

How, then, can we improve human well-being without consuming more resources? Many people have an opinion on this question. But instead of giving you my opinion, I’ll look at the evidence. Let’s see what countries actually do to improve human welfare without using more energy.

Measuring well-being

I’m going to measure well-being using life expectancy (from birth). It may seem like a crude measure, but the more I think about it, life expectancy is probably the best measure of welfare we have. First, people universally want to be healthy. And there’s no better way to measure health than to see how long people live. Second, ‘health’ is holistic — it’s affected by your whole life experience. Health tends to worsen when you’re stressed, unhappy, and otherwise malcontent. I think it’s reasonable, then, to use life expectancy to measure human welfare in a holistic sense.

So how can we increase life expectancy? The route we’ve taken for the last two centuries is to consume more energy. Make no mistake, this works. As Figure 1 shows, using more energy (per person) reliably increases life expectancy. The black line is the trend across all the data. Countries that start at agrarian levels of energy use (about 20 GJ per person) can expect to gain, on average, about 20 years of life expectancy as they industrialize.

…click on the above link to read the rest of the article…

Why America Won’t Be ‘Great’ Again

July 11, 2020

Why America Won’t Be ‘Great’ Again

They called him the ‘Little Emperor’. Romulus Augustus — better known as Romulus ‘Augustulus’ (‘Little Augustus’) — was the last Western Roman Emperor. He assumed the throne at the age of 16 during a period of unprecedented strife. There had been 8 emperors in the previous 20 years. Like his predecessors, the Little Emperor’s reign was short. It lasted less than a year. In 476 CE, Augustus was deposed and the Western Roman Empire came to an end.1

One wonders what Augustus said to his followers during his reign. As little more than a proxy for his military-general father, Augustus left no monuments and made no decisions. But what might he have said in private? Perhaps he promised to ‘make Rome great again’. …

✹ ✹ ✹

We are perennially fascinated with the rise and fall of the Roman Empire. Why? Likely because its collapse cast such a long shadow on Western Europe. Once the center of civilization, the Roman collapse sent Western Europe into a dark age. It would take a millennia to recover.

Interestingly, the Roman elite seemed to be the last to recognize the empire’s decline. True, during Augustus’ reign the elite probably knew that the empire was a shadow of its former self. But elites were too busy squabbling over power to care much for the long arc of history. In their eyes, a return to Roman ‘greatness’ was probably forever on the horizon.

Perhaps the best characterization of this elite attitude comes not from history, but from science fiction. In his Foundation trilogy, Isaac Asimov imagines a galactic empire that sits on the verge of collapse. Scientist Harry Seldon sees the writing on the wall. But the leaders of the galactic empire do not. They’re too busy squabbling amongst themselves.

…click on the above link to read the rest of the article…

Energy and Institution Size

June 25, 2020

Energy and Institution Size

This week was a first for me. I participated in an academic conference that was entirely online. The conference — called Thermodynamics 2.0 — was designed to connect the natural and social sciences. It was a fitting place to discuss my research, and there were many interesting (virtual) talks.

I’ve posted here a recording of my presentation, called Energy and Institution Size. In it, I discuss how firms and governments tend to get larger as energy use increases. And I tell you why I think this happens. (Spoilers … I think it has to do with hierarchy.)

If you’re a regular reader, you’ll have seen much of this material before (here, here, here, and here). But perhaps you’ll enjoy an audiovisual presentation of it. If you’re a new reader, this talk is a good introduction to my work.

You can download the slides here. If you want to dive into the methods, you can read about them over at PLOS ONE. For a more recent article about the same evidence, check out Economic Development and the Death of the Free Market.

Can the World Get Along Without Natural Resources?

June 21, 2020

Can the World Get Along Without Natural Resources?

If it is very easy to substitute other factors for natural resources, then there is in principle no “problem”. The world can, in effect, get along without natural resources.– Robert Solow, 1974

In the distant future, aliens come to Earth. They find a planet devoid of life. Looking closer, the aliens see that life on Earth was once abundant, but was wiped out by a mass extinction. Curiously, this event was driven not by geological disaster, but by one of the extinct species itself. In an orgy of consumption, an odd little animal put the planet under enough stress to drive itself —and the rest life — extinct.

Then comes a startling discovering. Preserved in the sediment lies a document written by a member of the doomed species. What secrets does it contain? The aliens work for years to translate it, hoping that it offers a clue about what drove the species to overconsume. And indeed it does. The document heralds a remarkable delusion: “The world can, in effect, get along without natural resources.”

What a naive animal, the aliens conclude. While sucking the planet dry, the animal proclaimed its independence from natural resources. No wonder it went extinct.✹ ✹ ✹

Let’s hope this future is apocryphal. If, in the distant future, aliens do visit the Earth, I hope they find a planet teeming with life. Maybe they’ll even find an industrious, upright-walking animal that has learned to live sustainably.

If this bright future does come to pass, it will be because we’ve manage to shed our delusions. Contrary to the proclamations of neoclassical economists (like Robert Solow), the world cannot get along without natural resources. That this fact needs stating is a testament to the shallowness of economic theory.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
Click on image to read excerpts

Olduvai II: Exodus
Click on image to purchase

Click on image to purchase @ FriesenPress