Thread by @r3dot0

Economic Growth Theory: Discounting the Future

r3dot0.medium.com/economic-growt…

Continuing the series of excerpts from our White Paper, From Monocapitalism to Multicapitalism: 21st Century System Value Creation by our Sr Dir @bbaue

@bbaue Epigraphs:

In [William Nordhaus’] model, the welfare of future generations is given less weight than the current generation’s welfare […] given that future generations will be much richer than those now living.

Hal Varian, 2006

nytimes.com/2006/12/14/bus…

@bbaue Epigraph 2:

[W]e must then ask whether we can candidly acknowledge that general affluence simply cannot last in the face of a carrying capacity deficit. That fact is perhaps only a trifle less repugnant than the idea that...

@bbaue ...the buried remains of the Carboniferous period must not be taken as fuels.

William Catton, 1980

monoskop.org/images/9/92/Ca…

@bbaue Epigraph 3:

The goal of perpetual economic growth would be seen as nonsensical, partly because the finite material base cannot sustain it, partly because human fulfillment does not demand it.

Dana Meadows, 1998

donellameadows.org/wp-content/use…

@bbaue In late 2018, Yale Professor William Nordhaus won the Nobel Prize in Economics for addressing “the question of how we can achieve sustained and sustainable global economic growth” in his four-decade career on the economics of climate change.

nobelprize.org/prizes/economi…

@bbaue [Nordhaus’] Dynamic Integrated model of Climate & the Economy (DICE) model, which “views climate change in the framework of economic growth theory,” pivots on the question of discount rates, asking if it’s wiser to spend now or later to combat climate change.

His answer? Later.

@bbaue In his Nobel lecture, Nordhaus presents an “optimal” scenario that employs a discount rate of ~3%, which would stabilize global temperature at ~3.5°C above pre-Industrial levels to achieve the “ideal” balance of economic impacts vs climate change impacts.

nobelprize.org/uploads/2018/1…

@bbaue Global scientific and political consensus consider 1.5°C to be the “safe limit” of global temperature rise, with an outer limit of 2°C, suggesting a radically different interpretation of the term “optimal” from that of Prof. Nordhaus.

@bbaue [Ironically, the “idea of two degrees as the safe threshold for warming evolved over a number of years from the first recorded mention by economist William Nordhaus in 1975.”]

bbc.com/news/science-e…

@bbaue Interestingly, Sir Nicolas Stern, who for the UK Treasury Department authored the 2006 Stern Review of the Economics of Climate Change – widely considered the most comprehensive review of the economics of climate change – did not receive a Nobel Prize.

webarchive.nationalarchives.gov.uk/20100407172811…

@bbaue Lord Stern proposed a discount rate of 0.1 percent, “implying almost equal weight to all generations,” according to Berkeley Economist Hal Varian in a New York Times comparison of the Stern and Nordhaus approaches.

nytimes.com/2006/12/14/bus…

@bbaue By contrast, in Nordhaus’ model, “the welfare of future generations is given less weight than the current generation’s welfare […] given that future generations will be much richer than those now living,” Prof. Varian explains.

@bbaue The “fact” that future generations will necessarily be richer than current generations is taken as axiomatic – the notion that future generations might *not* be richer is not a possibility considered by economic growth theory.

@bbaue Prof. Nordhaus underlined this point to his Yale students on the day he learned of Nobel Prize:

"Don’t let anyone distract you from the work at hand, which is economic growth.”

news.yale.edu/2018/10/08/che…

@bbaue At the press conference about the Nobel Prize, @Yale Pres Peter Salovey lauded Nordhaus for “inspiring every one of us to realize Yale’s mission… to improve the world today & for future generations thru outstanding research & scholarship, education, preservation & practice.”

@bbaue But does Prof. Nordhaus’ work (and economic growth theory more generally) actually “improve the world today *and for future generations* through … *preservation*”?



yale.edu/about-yale/mis…

@bbaue The assumption underlying Nordhaus’ work (and of the Nobel Prize in Economics) is that economic growth “today and for future generations” improves the world more than climate change deteriorates the world.

@bbaue This is a questionable claim, given that a healthy climatic system underpins the ability to generate economic value, much less growth – and that resources and pollution sinks are not “illimitable,” in Kenneth Boulding’s words.

@bbaue And what about “preservation”?

Climate scientist James Hansen and colleagues had this to say about it in a famous 2008 paper:

"If humanity wishes to preserve a planet similar to that on which civilization developed and to which life on Earth is adapted...

@bbaue “...paleoclimate evidence and ongoing climate change suggest that CO2 will need to be reduced from its current 385 ppm to at most 350 ppm, but likely less than that.”

arxiv.org/abs/0804.1126

@bbaue How does 350 ppm (parts per million atmospheric carbon dioxide concentration) compare with Prof. Nordhaus’ “optimal” 3.5°C warming scenario?

A 2017 publication from the Yale School of Forestry & Environmental Studies (where Dr. Nordhaus holds a professorship) has this to say:

@bbaue "At the current rate of growth in CO2, levels will hit 500 ppm within 50 years, putting us on track to reach temperature boosts of perhaps more than 3 degrees C (5.4°F) — a level that climate scientists say would cause bouts of extreme weather and sea level rise that would...

@bbaue “...endanger global food supplies, cause disruptive mass migrations, and even destroy the Amazon rainforest through drought and fire.”

e360.yale.edu/features/how-t…

@bbaue The Nordhaus “optimal” 3.5°C model may project preservation of economic growth, but at the expense of preserving “a planet similar to that on which civilization developed and to which life on earth is adapted.”

@bbaue This conflict is not lost on keen observers, such as @jasonhickel who notes that

"Nordhaus reasons that the sectors most vulnerable to global warming—agricultural, forestry, and fishing—contribute relatively little to global GDP, only about 4 percent…"

@bbaue @jasonhickel continues:

"So even if the entire global agricultural system were to collapse in the future, the costs, in terms of world GDP, would be minimal.

These arguments obviously offend common sense.

And indeed, scientists have been quick to critique them.”

@bbaue "It’s absurd to believe that the global economy would just keep chugging along despite a collapse in the world’s food supply,” @jasonhickel adds.

"And mass extinction of species poses a very real threat to the web of life itself, on which all of human civilization depends...

@bbaue "Plus, Nordhaus doesn’t factor in the possibility of feedback loops that could kick in—Arctic methane release, ice-albedo feedback, and others we can’t yet predict—pushing us way beyond 3.5 degrees,” @jasonhickel further states.

@bbaue "No amount of wealth would be enough to help future generations navigate such a total system collapse,” @jasonhickel concludes.

foreignpolicy.com/2018/12/06/the…

@bbaue This last point is fundamentally important – neoclassical economics, and economic growth theory in particular, are based on linear assumptions, and therefore do not take into account non-linear possibilities that are nonetheless abundant in living systems.

@bbaue As Center for Applied Cultural Evolution Executive Director @cognitivepolicy points out: “economics, as a scientific endeavor, got its beginning by studying dead matter – not living matter.”

medium.com/@r3dot0/the-cu…

@bbaue @cognitivepolicy: “In the late 1800s, the best science available was statistical physics or thermodynamics, the study of the state of a piece of some matter like a liquid or a gas where you can have mathematical tools to tell you things like temperature, pressure, and density…"

@bbaue “...all of which are bulk measures of the statistical properties for trillions & trillions of atoms or molecules,” @cognitivepolicy added.

"The mathematics back then required them to add up the average values for these different molecules assuming that they were at equilibrium.”

@bbaue Despite developments in non-equilibrium thermodynamics, evolutionary biology, systems science, complexity science, etc economics remains stuck in equilibrium (or linear) mathematics, and thus is unable to account for complex adaptive systems...

@bbaue ...which exhibit non-linear developments when stressed past tipping points.

[S]uch non-linear developments include civilization collapses, climate catastrophe, and existential risk of human extinction (to accompany the unprecedented species extinction unfolding currently).

@bbaue In this sense, Prof. Nordhaus’ 3 percent discount rate (tied to an “optimal” 3.5°C scenario) amounts to systemic infanticide.

@bbaue Locking in catastrophic climate change in the present, on the presumption of future economic growth that would ostensibly better “afford” the cleanup costs, essentially guarantees mass mortality for future generations...

@bbaue ...given that climate change is already causing thousands of premature deaths at its present level of severity.

foreignaffairs.com/articles/2019-…

@bbaue When individuals postpone solving their problems, assuming they can better afford to do so in the future, we call them irrational; when global leaders advocate such decisions that seal the fate of untold numbers of our descendants, the proper term is intergenerational genocide.