Archive for the ‘Economics’ Category

What happens instantaneously on a pinhead that exists nowhere and everywhere? Most economic activity according to the dominant strain of economics. The absence of space and time is just one reason why such economics is so unhelpful in addressing questions of justice, equality and the environment.

Cities grow in particular places and over certain periods in history, forests grow somewhere and when they are cut down this happens one day at a time and, even in the age of the internet and global trading, most markets still have locations and goods take time to be delivered – from China or elsewhere. Like the movement of the planets, the changing weather, animals hunting and plants growing, economic activity happens in space and time – it can’t do otherwise.

Space and Time play little role in Economics – though they are crucial in all economic activities

Given the absolute centrality of space and time for all things economic you might be forgiven for thinking that they would be important components in modern economic ‘science’. They are not. In neoclassical economics, which retains a vise-like grip on both academia and policy making and provides the intellectual support for the ideology of neoliberalism, space and time are almost totally absent. Why is this? Why does it matter for people and the planet? And are there more useful alternatives?

In the 18th and 19th centuries all economists were political economists – Adam Smith, David Ricardo, J S Mill, David Hume and Karl Marx. Even while they were constructing simplified models of the ‘invisible hand’ and international trade, they were profoundly aware of the negative consequences an unfettered capitalist system can and does have for great swathes of humanity and for the environment.

But economics wanted to be more scientific and ultimately that means more mathematical. Casting around to find a suitable mathematics in the physical sciences, the first neoclassical economists (Leon Walras and W S Jevons for example) adopted the best they could find: Newtonian classical mechanics. Though perhaps natural, this choice has been of crucial importance to how economics has developed since. Even as most other sciences have moved beyond a narrow mechanical view of the world, economics has stuck with it.

Many things in the physical world can be explained and predicted using classical mechanics: how far a bullet will travel or how planets move around the sun in an elliptical orbit. It still lies at the heart of much useful technology.

Billiard balls remain still, in “equilibrium”, until the player uses his cue and applies a force to a ball. The ball moves, bumps into other balls (and indeed into the edge of the table) before eventually everything settles down again in a new equilibrium. If you can specify exactly the starting positions, the masses of the balls, the forces applied and the properties of the materials then you can predict not only where everything will end up but also the routes the balls will take and how long it will all take – so space and time are not only explicitly included but also absolutely fundamental.

What neoclassical economics did was take this model and replace mass and distance with price and quantity.

Neoclassical economics adopted a stripped down version of classical mechanics it still uses to this day

A market is in equilibrium if it “clears”, this means that the quantity people want to buy at a given price equals how much people want to sell. This applies whether the market is for labour, for goods or anything else. Everything is stable until there is an impulse or shock. This is the equivalent to the cue hitting a billiard ball. These impulses might be changes in consumer tastes and preferences, suppliers using a new technology or a change in the price of labour or raw materials. Suddenly it looks as though the market might not clear and unemployment or stock shortages might appear. Of course in mechanical physics such “out-of-equilibria” are normal, the billiard balls are all moving through space and time till they settle down again in new positions.

But to make their models tractable the early neoclassical economists had to completely strip down classical mechanics and drop any concept of space and time. Where exactly is the market operating? Implicitly the answer is that it takes place at a point, but not a real geographic point, rather an abstract point. In this sense economic transactions happen on a pinhead that is both everywhere and nowhere.

It’s the same with time. In neoclassical economics if it takes time to move from one equilibrium to another, this would mean that markets may not clear, trading could take place at “false prices” and they might never settle down again. Initially this problem was overcome by the introduction of what later became known as a Walrasian auctioneer. This purely fictive being, analogous to Maxwell’s Demon in physics, “groped” his way to a solution by repeatedly calling out prices, checking the resultant demands and supplies until prices that will clear the market are found – only then can trading take place. Coupled with the later introduction of “rational expectations” – in which actors have perfect foresight and complete information – this enabled economics to ignore space and time. In a Pollyannaish way, following any disturbance or shock, the economy jumps instantly from one equilibrium to another – going through nowhere on the way – in a type of economic Quantum Leap.

Now in real markets there is no auctioneer; buying and selling is continuous, prices actually emerge from the dynamic interaction of different agents who don’t have perfect knowledge and often use rules of thumb or customs to guide their decisions.

Harold Hotelling looked at how ice cream sellers would space themselves on a beach

Even within the neoclassical tradition there have been many economists who have introduced space and time into their work. Starting with Harold Hotelling’s analysis of where how ice-cream sellers would “space” themselves along a beach, there have developed whole sub-branches of economics: spatial economics, economic geography and regional economics. Similarly with time; economists knew economic processes took time so they introduced various types of “lags” into their models – although these did tend to disappear once “rational expectations” were introduced and things happened instantaneously. Yet unfortunately it is true to say that such approaches have remained peripheral to the big issues of macroeconomics; being confined on the whole to micro, though important, issues like transport and schooling.

The absence of space and time is not the only unrealistic feature of neoclassical economics. It also tend to ignore most important aspects of scale, energy use, resource limits, how aggregate markets are not scaled up individual demand and supply curves, and how economic actors actually interact, adapt, behave and choose. There is also no concept of time’s arrow, i.e. the irreversibility of processes and how such “path dependence” is crucial for economic development. The point is that even though all these factors have been studied by some excellent economists (usually of the non neoclassical variety), they are still marginalised within academia, business and government policy making.  Stripped down classical mechanics still rules the roost.

In 1954 Milton Friedman argued that it doesn’t matter if the assumptions made by economics are unrealistic as long as the models make accurate predictions. The sad fact is, however, that these models have not only proved spectacularly unable to make predictions, and not just of periodic financial and banking crises, but much more importantly they haven’t even been able to explain such events after the fact. When something happens that shouldn’t have been able to occur according to their models, neoclassical economists rush around trying to retrofit their theories – mostly without success.

All complex adaptive systems create inequality as seen in Zipf’s Law

As economies and other social systems evolve through time and space major inequalities emerge, in income, wealth, population densities and so on – all manifestations of Zipf’s Law. Approaches to economics that start with people, firms and institutions interacting with and adapting to each other in space and time can generally “explain” this phenomenon; inequality is endogenous or, better said, an emergent property of all complex adaptive systems.

On the other hand, neoclassical economics struggles with inequalities – they are rather mysterious. Free trade, arbitrage, the invisible hand of the price system plus economic growth “trickling down” to the poor should tend to eliminate them. Obviously they never have, so the answer must lie in making the world better fit the stylised economic models rather than changing the models to better explain the world; a completely unscientific approach that has appalled natural scientists. So, for instance, the IMF and the International Trade Organisation impose “structural adjustment” and free trade with never ending alacrity. The contention is that they will bring about economic growth and ultimately lead to a reduction in poverty and inequality. Of course it never happens and millions suffer the miserable consequences.

Nicholas Georgescu-Roegen an economist who took entropy seriously

Turning to the environment, in scientific terms neoclassical economics is a “closed system”, consumers consume, firms produce and money circulates to oil the wheels. It’s a circular flow. Implicitly a boundary circle has been drawn around the system. Things outside this circle, such as finite energy or resources, the environment or even other species, either don’t exist or are treated as “externalities” and very often not even “priced”. Energy and resources can be had in limitless quantities forever, though the input price may vary. This completely misunderstands the two laws of thermodynamics – the conservation of energy and the entropy law – both of which operate in space and time. All economic wealth is created by energy and resources. These often take eons to accumulate in specific locations and are not limitless, yet they can be used up very quickly indeed in a mass entropic civilisation such as ours. The consequences are there for all but the blinkered to see.

It’s very unlikely that neoclassical economics will ever be able to make a real contribution to alleviating poverty, tackling ecological despoliation and moving us towards a more just and sustainable world. But there are many other sorts of economics in which human and planetary justice matter. It is to these that we must look.

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Originally published in Resurgence/The Ecologist in January/February 2013. To buy Resurgence, read further articles online or find out about The Resurgence Trust, visit: www.resurgence.org

Review of Debt

This shortened version of an interview with the Green Party’s economic spokesperson Molly Scott Cato was published in the Autumn issue of Positive News.  http://positivenews.org.uk/2012/economics_innovation/8287/green-economic-vision/

Stephen Lewis talks to Green Party economic spokesperson Molly Scott Cato about a new approach to economics

Molly Scott Cato is a green economist and expert in the social economy    Photo © Tim Dickeson

“We’re not going to save the planet by putting our country out of business.” This is the view of the chancellor, George Osborne, who suggested last year that protecting the environment and minimising climate change are burdens on the economy. But for others, this perspective is naive when the environment is the ultimate source of wealth and growth.

Molly Scott Cato, author of Green Economics and economics spokesperson for the Green Party, believes it is possible to have an economy, “that lives comfortably within the planet, addresses the social justice implications and is practically focused in terms of policy and community activity.”

However, this is not occurring, she believes, because “what happens in economies,” has drifted apart from how economics is taught in higher education.

Neoclassical economic theory, upon which our current system is based, is flawed because it is self-referential, says Molly: “Whatever question you put to it, it has an answer within its own ideology, but very little of what it does relates to what’s happening outside the window of the university. This is why they [neoclassical economists] weren’t able to predict the economic crisis and why they don’t worry about resource depletion.”

Most green economists derive much of their understanding from ecological economics, an approach that Molly feels is more grounded in reality. This understanding regards nature as the primary source of wealth and resources. To have a viable economy hence means that addressing the problems of dwindling supplies of fossil fuels, CO2 emissions and climate change is central.

With the need for renewable energy sources being the first pillar of green economics, this also connects to the issue of localisation, as much energy is wasted in the globalised system. Green economists also favour localisation for reasons of accountability, power and control.

“Local economies help to build strong communities whereas a global economy undermines them,” believes Molly.

Other politicians are beginning to praise the potential of a green economy. Energy secretary Ed Davey commented in April, for example: “We should make more strongly the business case for going green. Efficiency policies are unashamedly good for growth – using less resources lowers operating costs and frees up capital.”

But the defining characteristic of a green economist, according to Molly, is the idea that economic growth is the problem rather than the solution to the global economic crisis. “We start from the point that quality is more important than quantity,” she says.

“There is some good thinking in the Department of Energy and Climate Change, but by the time it gets to the Treasury it is crushed by the same last-century, pro-growth prejudices. The main problem is that the government is going for growth, so saying growth might not be the best thing for the planet, isn’t going to get very far.”

Within what the Green Party regards as the constraints of the current system, Molly’s main proposal is: “We should only invest energy in areas where we know ultimately that we will use less energy – what we might call ‘transitional investment.’”

She explains that this understanding would mean that it would make sense to invest in a national network of electric car recharging points or in insulating people’s houses, but building a new airport could not be justified.

Green economists are also suggesting carbon and land taxes. They want to see policies that will help us use land as a carbon sink. “We could use the tax system coupled with the local planning system to encourage that,” says Molly, “taking land away from wealthy farmers living from subsidies paid by the poor, and providing incentives for all those who own land to use it in the way that best captures and stores carbon.”

Green economists believe that traditional economics is unlikely to be able to make a real contribution to alleviating poverty, tackling environmental problems and moving us towards a more fair and sustainable world. If they’re right, new types of economics in which human and environmental justice are the foundation, might be the answer to building a more sustainable future.

In a recent article  I touched on the issue of the Enclosure of the Commonsboth in France and Britain. In Britain enclosure was a brutal affair that stretched over many centuries. George Orwell once put it thus:

Stop to consider how the so-called owners of the land got hold of it. They simply seized it by force, afterwards hiring lawyers to provide them with title-deeds. In the case of the enclosure of the common lands, which was going on from about 1600 to 1850, the land-grabbers did not even have the excuse of being foreign conquerors; they were quite frankly taking the heritage of their own countrymen, upon no sort of pretext except that they had the power to do so.

In the previous century Karl Marx had already summed up what the enclosures were all about:

We have seen how the forcible seizure of the common lands, accompanied for the most part by the transformation of arable into pasture, began in the fifteenth century and lasted on into the sixteenth […] The advance that has been made in the eighteenth century is shown in this, that the law itself now became the instrument by which the theft of the people’s land was achieved, although the great farmers continued to use their petty private methods in addition. The parliamentary form of this robbery was to pass Acts for the enclosure of commons; in other words, decrees whereby the great landowners made a present to themselves of the people’s land, which thus became their own private property […] a systematic seizure of communal landed property helped, side by side with the theft of the State domains, to swell the size of those great farms which, in the eighteenth century, were called ‘capital farms’ or ‘merchant farms’, and ‘to set the country folk at liberty’ as a proletariat for the uses of industry.

The 17th Century Diggers were just one of numerous protests against the Enclosures

To be sure there was much protest, resistance and even rebellion at both the local and national levels. We can find numerous court reports, aristocratic complaints about resistance and rebellion, as well as pamphlets and writings from, for example, the Levelers and Diggers of the 17th century. E. P. Thompson and many other historians and economists have consistently tried ‘to rescue the poor stockinger, the Luddite cropper, the obsolete hand-loom weaver, the utopian artisan ….. from the enormous condescension of posterity.’ Yet much of the evidence regarding what actually happened, and what the people affected by the Enclosures felt, does not come directly and unmediated from the ‘common’ people themselves. It doesn’t come from those whose livelihood was being taken away, from those who were being forced into the horror of the Poor House or into the equally brutal squalor of the urban factory.

I always find it humbling and moving when we can hear the actual words of those being oppressed; even more so when the testimony comes in poetic form. I would like to share two poems that do just this. The first in from the 17th century and is called The Goose and the Commons. We don’t know who wrote it, but it is an early and rare eye-witness account of the English enclosures:

                 The Goose and the Commons

The law locks up the man or woman
Who steals the goose from off the common
But leaves the greater villain loose
Who steals the common from off the goose.

The law demands that we atone
When we take things we do not own
But leaves the lords and ladies fine
Who take things that are yours and mine.

The poor and wretched don’t escape
If they conspire the law to break;
This must be so but they endure
Those who conspire to make the law.

The law locks up the man or woman
Who steals the goose from off the common
And geese will still a common lack
Till they go and steal it back.

John Clare – The Peasant-Poet

The common people may be mute in much of written history, but when they speak, as in this poem, we find that they were in no way unaware of what was happening to them and who was really responsible, even though their horizons might have only been local.

The other poem is from two hundred years later and comes from the ‘peasant-poet’ John Clare. Clare described his writings as ‘the voice of a poor man’.  As the historian of the Commons J. F. C. Harrison points out: ‘John Clare, the peasant-poet and son of a cottage farmer in Helpstone, Northamptonshire, is perhaps the only voice of an actual victim of enclosure. Helpstone was enclosed by an Act of 1809 when Clare was sixteen.’ The poem is called The Mores (‘Moors’):

                 The Mores

Far spread the moorey ground a level scene
Bespread with rush and one eternal green
That never felt the rage of blundering plough
Though centurys wreathed spring’s blossoms on its brow

Still meeting plains that stretched them far away
In uncheckt shadows of green brown, and grey
Unbounded freedom ruled the wandering scene
Nor fence of ownership crept in between

To hide the prospect of the following eye
Its only bondage was the circling sky
One mighty flat undwarfed by bush and tree
Spread its faint shadow of immensity

And lost itself, which seemed to eke its bounds
In the blue mist the horizon’s edge surrounds
Now this sweet vision of my boyish hours
Free as spring clouds and wild as summer flowers

Is faded all – a hope that blossomed free,
And hath been once, no more shall ever be
Inclosure came and trampled on the grave
Of labour’s rights and left the poor a slave

And memory’s pride ere want to wealth did bow
Is both the shadow and the substance now
The sheep and cows were free to range as then
Where change might prompt nor felt the bonds of men

Cows went and came, with evening morn and night,
To the wild pasture as their common right
And sheep, unfolded with the rising sun
Heard the swains shout and felt their freedom won

Tracked the red fallow field and heath and plain
Then met the brook and drank and roamed again
The brook that dribbled on as clear as glass
Beneath the roots they hid among the grass

While the glad shepherd traced their tracks along
Free as the lark and happy as her song
But now all’s fled and flats of many a dye
That seemed to lengthen with the following eye

Moors, loosing from the sight, far, smooth, and blea
Where swopt the plover in its pleasure free
Are vanished now with commons wild and gay
As poet’s visions of life’s early day

Mulberry-bushes where the boy would run
To fill his hands with fruit are grubbed and done
And hedgrow-briars – flower-lovers overjoyed
Came and got flower-pots – these are all destroyed

And sky-bound mores in mangled garbs are left
Like mighty giants of their limbs bereft
Fence now meets fence in owners’ little bounds
Of field and meadow large as garden grounds

In little parcels little minds to please
With men and flocks imprisoned ill at ease
Each little path that led its pleasant way
As sweet as morning leading night astray

Where little flowers bloomed round a varied host
That travel felt delighted to be lost
Nor grudged the steps that he had ta-en as vain
When right roads traced his journeys and again –

Nay, on a broken tree he’d sit awhile
To see the mores and fields and meadows smile
Sometimes with cowslaps smothered – then all white
With daiseys – then the summer’s splendid sight

Of cornfields crimson o’er the headache bloomd
Like splendid armys for the battle plumed
He gazed upon them with wild fancy’s eye
As fallen landscapes from an evening sky

These paths are stopt – the rude philistine’s thrall
Is laid upon them and destroyed them all
Each little tyrant with his little sign
Shows where man claims earth glows no more divine

But paths to freedom and to childhood dear
A board sticks up to notice ‘no road here’
And on the tree with ivy overhung
The hated sign by vulgar taste is hung

As tho’ the very birds should learn to know
When they go there they must no further go
Thus, with the poor, scared freedom bade goodbye
And much they feel it in the smothered sigh

And birds and trees and flowers without a name
All sighed when lawless law’s enclosure came
And dreams of plunder in such rebel schemes
Have found too truly that they were but dreams.

I will not offer a close reading of this poem, I leave that to you. Of course the poem is about the impact of the enclosures on both people and the countryside, but it also is quite clear regarding who gained. A reader of the poem once observed that ‘privatization of the common land appears in itself as unnatural, as a crime against the animals, birds, insects, trees, flowers, rivers and streams themselves.’ Clare was indeed an early ecologist; he even called his works a ‘language that is ever green’. I leave the final word yet again to E. P. Thompson:

Clare may be described, without hindsight, as a poet of ecological protest: he was not writing about man here and nature there, but lamenting a threatened equilibrium in which both were involved.

Sources

John Clare, A Champion for the Poor: Political Verse and Prose. Manchester, Carcanet Press, 2000;  George Orwell, As I Please, Tribune, 18 August, 1944; Karl Marx, Capital. Volume 1, London, Everyman’s Library, 1974;  J. F. C. Harrison, The Common People: A History from the Norman Conquest to the Present, London: Flamingo, 1984; E. P.Thompson, The Making of the English Working Class, Harmondsworth, Penguin Books, 1975 ; Ronald Paul, A language that is ever green, Moderna Sprak, 2011.

Deforestation and the general despoliation of the planet continue to accelerate. It is often contended that overpopulation, playing itself out via a ‘Tragedy of the Commons’, is the primary cause. It is not. The ‘Tragedy of the Commons’ is a quite pernicious myth. A resource ‘free-for-all’ can and does lead to environmental disasters. But throughout history, communal use and management of land and forests has often been extremely sustainable.

As many trees have been felled in the last 50 years as in the whole of history before!

In 2006, in his magisterial book Deforesting the Earth, the Oxford historical geographer Michael Williams wrote: ‘the area cleared since 1950 has only just about come near the amount cleared before that.’ He was illustrating the fact that deforestation has been going on for centuries, indeed for millennia. Williams’ work has performed a great service by minutely and exhaustively showing us how and when deforestation occurred in different parts of the world. But what is perhaps more arresting is that it also quite literally means that over the last half-century humans have cut down as many trees as they did in the whole of history before!

Major episodes of deforestation have happened at different times in different regions. Quite early on in the (at one time) fertile crescent, during the first millennium in China, in the Middle Ages and the early modern period in Europe, in the 18th and 19th centuries in North America, and in the 20th century in much of the rest of the world. There is no doubt that deforestation and ‘civilization’ have always gone hand in hand. The more advanced the civilization the faster the trees fall.

One persisting and pernicious myth about environmental degradation in general, and deforestation in particular, is that the root cause is almost always overpopulation. According to Berkeley biologist Garrett Hardin this is manifested or played out in what he called The Tragedy of the Commons. In his original 1968 paper, Hardin was quite explicit:

The tragedy of the commons develops in this way. Picture a pasture open to all. It is to be expected that each herdsman will try to keep as many cattle as possible on the commons. Such an arrangement may work reasonably satisfactorily for centuries because tribal wars, poaching, and disease keep the numbers of both man and beast well below the carrying capacity of the land. Finally, however, comes the day of reckoning, that is, the day when the long-desired goal of social stability becomes a reality. At this point, the inherent logic of the commons remorselessly generates tragedy.

He goes on to assume that ‘each herdsman seeks to maximize his gain’ and makes a rational calculation. If he adds another animal to the commons he will receive all the benefit and, even though his adding more and more animals might contribute to overgrazing, these negative consequences do not just fall on him, they are shared by all. As Hardin concludes, the logic of this is that:

The rational herdsman concludes that the only sensible course for him to pursue is to add another animal to his herd. And another; and another. But this is the conclusion reached by each and every rational herdsman sharing a commons. Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit – in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all.

Garret Hardin – Eugenicist and author of ‘The Tragedy of the Commons’

Hardin’s main purpose was not to examine the history of the English commons, nor the long process of their Enclosure (i.e. privatization). He didn’t do this at all. Instead, following in the footsteps of Thomas Malthus, his programme was to argue that the only answer to the Tragedy was, wherever practical, to move all common lands or rights to use the land, into private ownership – thereby establishing clear ‘property rights’.  But Hardin had another agenda as well. He was a eugenicist and had often argued for the forced sterilization of ‘genetically defective’ people. In The Tragedy of the Commons he was quite explicit that we needed to ‘relinquish the freedom to breed’:

The only way we can preserve and nurture other and more precious freedoms is by relinquishing the freedom to breed, and that very soon. “Freedom is the recognition of necessity”–and it is the role of education to reveal to all the necessity of abandoning the freedom to breed. Only so, can we put an end to this aspect of the tragedy of the commons.

To be sure, it wasn’t rich property owners who would have to stop breeding. He made it quite clear that the onus was on the poor, whether at home in the United States or in the Third World. What is more, the poor would need to be ‘coerced’ to do so. In 1997, the Wall Street Journal reported:

Mr. Hardin expressed alarm about ‘the next generation of breeders’ now reproducing uncontrollably in Third World countries. The problem, according to Mr. Hardin, is not simply that there are too many people in the world, but there are too many of the wrong kind of people… It would be better to encourage the breeding of more intelligent people rather than the less intelligent.

I will try to highlight four things: That the so-called Tragedy of the Commons is a myth; that more often than not ecological tragedies have been driven much more frequently by the ruthless pursuit of short-term capitalist profit-maximization than they have by the exercise of communal rights; that the legacy and acceptance of Hardin’s Tragedy has had pernicious consequences; and, finally, that the ‘population question’ isn’t as simple as neo-Malthusians might suggest. In a separate piece I will also present a small ‘micro-history’ of events in the Ariège region of the French Pyrenees in the early 19th century. This, I believe, can illustrate some of the some of the general issues surrounding The Tragedy of the Commons.

The ‘Myth’ of the Tragedy of the Commons:

Harden's 1968 article appeared in Science magazine

Harden’s 1968 article in Science magazine…notice the question mark!

As his primary historical example Hardin used the supposed overgrazing of the ‘commons’ in England in the period leading up to the 19th century. He based his contentions on the work of the English mathematician and political economist William Foster Lloyd. But, as many scholars have since shown, the English commons never really afforded unrestricted or unfettered access to common land or resources. It was never a ‘free-for-all.’ The English commons consisted in a number of ancient rights that individuals and communities had either enjoyed for centuries or had managed to extract – often against fierce resistance – from their feudal Lords. The types of rights, for example to fish, to forage for wild produce, to gaze sheep and cows or to collect wood or cut down trees, and the extent of these rights, was never vague. Sometimes rights were written down but often they were just well-known customary practices – finding their origin in times ‘immemorial’ – but everyone knew who had rights and to what.

It was the American political economist Susan Cox who first described The Tragedy of the Commons as a ‘Myth’. She concluded her excellent study of the English commons’ issue, No Tragedy on the Commons, with the following observation:

Perhaps what existed in fact was not a ‘tragedy of the commons’ but rather a triumph: that for hundreds of years – and perhaps thousands … – land was managed successfully by communities.

Contrary to what Hardin and others implied, it is quite clear that the English Enclosure Movement was not some sort of beneficial event that saved the commons from being completely despoiled and denuded. In reality, it was a forced privatization, taking place over several centuries and often in the face of fierce opposition. It was quite simply an exercise through which powerful elites tried, and succeeded, in grabbing more power for themselves.

Ultimately whether or not the history of the English commons and the Enclosure Movement as it was presented by Garret Hardin was true or false might seem only to be of interest to historians of the period. But this is not the case. He implied that such tragedies of the commons were absolutely inevitable and that they had happened throughout history. In 2009, the American political economist Elinor Ostrom jointly won the Nobel Prize for Economics for her decades’ long work, which had showed that this had not been so –at least not most of the time. She and her collaborators presented dozens, if not hundreds, of historical and contemporary examples highlighting where communities have been able to manage communal resources sustainably, without any environmental tragedy. Ostrom wrote that Hardin’s ‘conclusion of an inevitable tragedy was too sweeping’.

Ostrom acknowledged that what she refers to as ‘open-access common-pool resources’ have sometimes been ‘overharvested’. But only in the cases where the commons concerned were a ‘free-for-all’ – which has only been the case in a certain number of situations. Even the Columbia University economist Joseph Stiglitz, himself a Nobel Prize  winner, commented that Conservatives ‘have used the Tragedy of the Commons to argue for property rights, and that efficiency was achieved as people were thrown off the commons’. He adds that what Ostrom has demonstrated is the ‘existence of social control mechanisms that regulate the use of the commons without having to resort to property rights’. So while a ‘free-for-all’ can lead to environmental tragedies, communal ownership, management and use mostly has not. The Tragedy of the Commons is a Myth.

Who really causes the Tragedies?

Nobody, I daresay, would deny that the world has witnessed and is still witnessing innumerable examples of environmental tragedies and even catastrophes. ‘If you’re looking for a tragedy’, writes Raj Patel, ‘you can find it everywhere, from the scrambling coltan-mining communities in the Congo to the increasingly desperate actions of farmers applying inorganic fertilizer to the soil to replace the fertility that their mono­culture has destroyed.’

Modern capitalist logging is what causes most deforestation

I use the word tragedy here in is usual everyday sense, rather than with the classical Greek meaning implied by Hardin – i.e. some sort of logical and inevitable playing out of forces beyond the understanding of the protagonists. It is certainly true that sometimes these tragedies have had their roots in instances of overpopulation and even in instances of an unfettered free-for-all to derive profit from ‘open-access’ resources –whether they be forests, rivers or seas. Yet in the bulk of cases it has not been groups of rural communities with common rights in the land or forests that have caused these tragedies. What is striking is that the bulk of contemporary commentary on ecological degradation is that it completely removes itself from the question of ‘who’ exactly caused it. Even from the question of what, in concrete terms, were the underlying causes. It does this by employing such abstract and vague terms as ‘humans’. Sometimes it even reifies this term to ‘Humankind’. We are told ‘human’ population growth is causing environmental damage and resource depletion; ‘humans’ are cutting down the rain forests; and ‘humans’ are causing global warming.

In one way this is the logical result of the dominant neo-classical economic model. For the sake of mathematical simplicity, this model abstracts from all aspects of geography (space), all aspects of history (time) and even from all aspects of group interaction and dynamics. It does this by constructing a fictive super-rational single ‘representative agent’ who makes decisions based solely on prices given by an equally fictive market. In such a world there really is no place for individuals, groups, classes or even enterprises. The singular fictive representative agent subtly morphs into the plural ‘humans’. This ‘neo-classical’ economic model is not the only one available. For centuries many wonderful economists have examined and analyzed space, time and all manner of group interactions. Yet it unfortunately remains true that these rich parallel economic traditions remain marginalized.

To return to the theme; throughout history it can be shown, again and again, that it was not the overexploitation of the commons by local rural communities that led to environmental tragedies. Rather, in pre-capitalist times, it was overexploitation by the power elites and, in capitalist times, overexploitation by capitalist companies, that generally caused such environmental catastrophes. In the second half of this essay I will present one such example, the deforestation of a part of the French Pyrenees in the early 19th century.

As Raj Patel has commented, I think justly:

The environmental tragedies from the Dust Bowl to the mass extinctions of rainforest and ocean are the result of the behavior of corporations, of capitalist agriculture and forestry and fishing. The Dust Bowl happened because while individuals knew full well the value of the topsoil, their induction into capitalist agriculture turned them into exploiters of the very land on which their survival depended, transforming their connection to the world around them into one solely of short-term profit.

Why the Myth is Pernicious

Garrett Hardin clearly wasn’t the first person to highlight the supposed negative consequences of communal rights and practices. Aristotle even talked about it in the fourth century BC. In more recent times, and perhaps more pertinently, we can clearly see the company Hardin was keeping in the work of Ludwig von Mises – the conservative ‘Austrian School’ economist. Together with his somewhat more famous compatriot Friedrich von Hayek, von Mises did much to provide the philosophical underpinnings of modern American and Western Neo-Conservatism. In his 1947 work Human Action, von Mises wrote:

If land is not owned by anybody, although legal formalism may call it public property, it is utilized without any regard to the disadvantages resulting. Those who are in a position to appropriate to themselves the returns—lumber and game of the forests, fish of the water areas, and mineral deposits of the subsoil—do not bother about the later effects of their mode of exploitation. For them the erosion of the soil, the depletion of the exhaustible resources and other impairments of the future utilization are external costs not entering into their calculation of input and output. They cut down the trees without any regard for fresh shoots or reforestation. In hunting and fishing they do not shrink from methods preventing the repopulation of the hunting and fishing grounds.

Regardless of its antecedents, it was Hardin’s own essay, and his coining of the term The Tragedy on the Commons, that has since become so supremely influential in both academic debate and, more importantly, in economic policy decision-making. This influence has been both insidious and pernicious. I have already alluded to the fact that Hardin’s Tragedy tends to ‘blame the victims’. I think this was best put in an insightful article written a few years ago by the Canadian Ian Angus:

 The fact that Hardin’s argument also blames the poor for ecological destruction is a bonus. Hardin’s essay has been widely used as an ideological response to anti-imperialist movements in the Third World and discontent among indigenous and other oppressed peoples everywhere in the world.

Big corporates are now extending property rights to our genetic inheritance

For decades international agencies, such as the IMF and World Bank, have based their policy prescriptions for the Third World and elsewhere on the implicit or explicit acceptance of the reality of the Tragedy of the Commons. Assuming it to be true, the corollary has been the necessity for countries to privatize all forms of collective ownership or use, and to better define and strengthen property rights. Such an approach has wreaked havoc around the globe.

More recently, we have even witnessed efforts to institute and profit from property rights in our planet’s genetic inheritance. Large agri-businesses sell (sometimes give) non-reproducing seeds to African farmers. No longer can they set aside some seed from each year’s crop to plant next year. They have to go back and buy the seed from the agri-businesses every year. Western companies are also claiming property rights in numerous natural gene sequences; extracted from plants, flowers and trees in the Amazon and elsewhere.

Many such companies couldn’t care less whether what they are doing can be justified morally or economically – they just want to make more profit. But whenever justifications are offered, they are, as often as not, couched in terms of The Tragedy of the Commons.

The Population Problem

It was Thomas Malthus in his 1798 publication entitled: An Essay on the Principle of Population, who first popularized the idea that population growth will tend to outrun the available food supply. If unchecked, populations will always grow geometrically (i.e. exponentially), whereas ‘the means of subsistence’ can only increase arithmetically. The world’s population would always tend to expand until famine, war, and disease eventually kept it in balance. He argued that there should be no relief measures for the poor, because they these would encourage excessive population growth and lead to disastrous social and environmental consequences.

Ecological disasters are at least as much caused by inequality as by overpopulation

Two hundred years later, when we consider the sheer numbers involved it is hard not to be both concerned and discouraged. The human population of the Earth today is nearing seven billion, two hundred years ago is was only around one billion, and if we go back to Roman times it is estimated that there were only about 231 million people on the whole planet – roughly one fifth of the population of India today! We are constantly reminded, though sadly to little effect, that we are living beyond the means of the earth, its natural resources and the sustainability of its eco-systems. The best estimate at present is that we would need two planets to sustainably support our present level of population, consuming at current levels. Though many many more if everyone consumed like the rich countries.

Looking back into history, many writers and commentators have presented past ecological and societal collapses as being predominantly caused by overpopulation. Jared Diamond is one of these. I will leave to one side some of the rather debatable analysis that Diamond presents for a number of his ‘collapses’; plus the fact that he seems to accept the ‘truth’ of the concept of The Tragedy of the Commons hook, line, and sinker. In his book, Collapse – How societies choose to fail or survive, he writes:

Population growth forced people to adopt intensified means of agricultural production… and to expand farming from the prime lands first chosen onto more marginal land, in order to feed the growing number of hungry mouths. Unsustainable practices led to environmental damage…

Of great importance here is not so much the validity or otherwise of the historical analysis, rather it is the fact that Diamond sees all environmental collapses, in the past and still today, as being brought on by overpopulation. Garrett Hardin was also of this Malthusian overpopulation school. That is why he wrote his seminal essay. He tells us: ‘Man’s population problem is this: the commons, if justifiable at all, is justifiable only under conditions of low-population density. As the human population has increased, the commons has had to be abandoned in one aspect after another.’ So while it might be the case that his whole rhetoric against the ‘commons’ was something of a red-herring, the growth in population was the absolutely central. His answer was to privatize everything that could conceivably be passed into private or corporate hands. When that wasn’t possible then draconian regulation was required:

The tragedy of the commons as a food basket is averted by private property, or something formally like it. But the air and waters surrounding us cannot readily be fenced, and so the tragedy of the commons as a cesspool must be prevented by different means, by coercive laws or taxing devices that make it cheaper for the polluter to treat his pollutants than to discharge them untreated.

The ultimate aim of Hardin’s plea was expounded in a long section of his essay called:Freedom to Breed Is Intolerable. One of his objectives was to eliminate any form of welfare support:

If each human family were dependent only on its own resources; if the children of improvident parents starved to death; if, thus, over breeding brought its own “punishment” to the germ line–then there would be no public interest in controlling the breeding of families. But our society is deeply committed to the welfare state, and hence is confronted with another aspect of the tragedy of the commons.

He suggested that ‘poor’ people needed to be coerced into stopping breeding. Being a fair man he recognized that coercion can sometimes be unjust:

We must admit that our legal system of private property plus inheritance is unjust—but we put up with it because we are not convinced, at the moment, that anyone has invented a better system. The alternative of the commons is too horrifying to contemplate. Injustice is preferable to total ruin.

The question here is justice and injustice for whom? It’s not in fact the millions of people living in the ‘third world’ who are causing the environmental disasters we are continuing to witness today. It is rather the massive level of consumption of people in the Western world and in certain industrialized parts of Asia. The average American consumes dozens of times more resources than the average African.  Just in the area of energy consumption, it has been calculated that each year a person in the United States has used as much energy by 2 am on the 2nd of January as a person in Tanzania uses in the whole year! The problem here isn’t just overpopulation but gross global inequalities as well.

One short micro-history of this myth is the companion piece: https://thewildpeak.wordpress.com/2012/08/23/la-guerre-des-demoiselles/

Sources and references

Michael Williams, Deforesting the Earth, Chicago, 2006; Garret Hardin, The Tragedy of the Commons, Science, 1968; ElinorOstrom, Governing the Commons: The Evolution of Institutions for Collective Action, Cambridge University Press, 1990, Susan Jane Buck Cox, No Tragedy on the Commons, Environmental Ethics, 1985 ; Ian Angus, The Myth of the Tragedy of the Commons, Socialist Voice, 2008; Thomas Malthus, An Essay on the Principle of Population, 1798; Ludwig von Mises, Human Action: A Treatise on Economics, 1949

Economics doesn’t seem able to predict anything of great import. It certainly didn’t seem able to predict or even, after the fact, explain the recent banking and financial crisis; the repercussions of which will be felt by millions for decades to come. Why was this? What are the limits of economic prediction? Here are just a few thoughts.

Although I’m a simple economist and not a physicist – who do tend to think, pithily though incorrectly, that anything other than physics is stamp collecting – I’d like to venture the opinion that even in physical mechanics there are two primary ways by which we can make predictions. They have to do with what we can call “momentum” and “cyclicality”.

Momentum is one way to make predictions

If you’re driving along a straight motorway and someone asks you to predict where you will be in a few seconds time, the most likely outcome, and thus possibly the best prediction, is that you’ll still be on the motorway but just a bit further on. The car has momentum and so, even if the engine suddenly packs up, you’ll probably still be on the road in the near future – momentum will tend to see to that. Of course lots of other things might happen. I could suddenly decide to take the exit road that has appeared, fall asleep at the wheel or hit an on-coming lorry that has crashed through the central barriers into my path. But all these things require human volition – that means me or others making choices and taking decisions – so they are not purely mechanical. Without volition, mechanical momentum, even angular momentum, will generally determine where I’ll end up in the very near future. Over much longer periods of time it’s also possible to predict with great accuracy where a moving asteroid will be quite far out into the future.

In economics it’s the same thing. If the rate inflation in the first quarter of any year is, let’s say, 2.5%, it’s highly unlikely that in the subsequent quarter it will be 20%. It’s possible but very improbable. If the inflation rate were a random walk (which it isn’t) the best forecast of next quarter’s rate would be what it was in the last quarter i.e.  2.5%. However economists can incorporate various leading indicators into their models and might thus predict that the second quarter inflation rate will be 2.7%. Basically unless something very drastic happens -a huge meteor strike or a nuclear war for example – I think it’s clear that the economy, and thus the inflation rate, have both inertia and momentum.

Whether an economist predicts that next quarter’s inflation will be 2.5%, 2.4% or 2.7%, the prediction will be reasonably accurate (depending on our definition of accurate), but only because of the inertia and momentum in the system. If you ask an economist to forecast what the inflation rate will be in 10 years time, he or she will either wisely refuse to make a prediction or if he or she does offer one it will, after the elapsed period of time, tend to prove to have been wildly inaccurate.

All physical scientists and engineers know this.

Meteorology is a science; yet even with all their sophisticated and mathematically elaborate models, meteorologists generally limit their weather forecasts to a few days out. If they get ambitious then they may extend this to a few weeks. They have no idea what the weather will really be like in London next June. Perhaps because it’s summer they could predict it’s not likely to be freezing, a point to which I will return in an oblique way later on. But even in the short term they can get it spectacularly wrong. Those who live in Britain might remember, as I do, the BBC’s weatherman, Michael Fish, confidently telling us in 1987 that: “Earlier on today, apparently, a woman rang the BBC and said she heard there was a hurricane on the way… well, if you’re watching, don’t worry, there isn’t!”. That evening, the worst storm since 1703 hit South East England. It caused record damage and killed 18 people. It also ripped off my roof! So even meteorology can only hope to make reasonably accurate weather predictions for very short periods – and then not always with complete success. This is because weather is a very complex dynamic system, and so its predictions tend to rely primarily on inertia and momentum.

We can predict the times of the tides because they’re cyclical

The second, and related, way in which we can make predictions is by taking account of cyclicality – events or patterns that repeat or reoccur. Our mechanical models can forecast the next appearance of Haley’s comet with great accuracy, as well as the times of the daily ebbs and flows of the tides at any location on the planet. Although these predictions are not strictly 100% accurate, they are very nearly so, and thus they are extremely useful.  Newtonian classical mechanics can and does predict a hell of a lot, and with enough certainty to have made it the bedrock of many of the most useful technological advances over the last couple of hundred years or so.

Unlike economics, the physical and other natural sciences have moved on from classical mechanics. This doesn’t mean they’ve abandoned it but just that mechanics and a “reductionist” method can’t explain everything. Einstein’s theories of relativity were a revelation. They told us truths about the nature of Space-Time that we could have hardly conceived before. Without knowing that time goes slower the faster we travel the world’s GPS system would become fairly inaccurate within a day or so. The two theories of relativity have been experimentally confirmed on numerous occasions since Einstein proposed them and they have enabled scientists to push forward the limits of physical prediction.

Similarly, and please excuse my economist’s ignorance of the subject, while the world awaits a grand unifying theory, it does seem to be the case that the sub-atomic world operates very differently to the macro world. You can’t simultaneously predict the position and momentum of particles; all you can do is work out some probabilities. Not only that but it seems that particles can disappear from one place and then reappear in another, seemingly without having been anywhere else in the interim! But theoretical quantum mechanics, despite its probabilistic nature, can also make predictions which are very often confirmed by experimental physicists. Even predictions of the likely existence of things – such as Higgs’ Boson.

Before turning back to economics, perhaps we can mention the weather again and even, though with some trepidation, the climate. Regarding the weather, I guess we’ve all heard how the flapping of a butterfly’s wings might cause a hurricane in India and about chaos theory in general. The problem for meteorologists when trying to predict the weather, over any time period other than the very short term, is that even if we can fully understand all mechanical and physical processes in their entirety, and thus could theoretically build comprehensive mathematical models that are fully deterministic – by this I mean for example that the weather system could be treated as a closed system uninfluenced by such outside “stochastic” shocks as periodic solar flares and the like – unless you can specify with absolute precision the exact starting positions, mass and energy, the “initial conditions”, of every atom that is involved in the dynamic development of weather, you’ll never be able to predict the weather somewhere in the world more than a few days out. Meteorologists know this and thus tend not to make such predictions.

“Greenhouse” gases have known physical and chemical effects

As I mentioned, I hesitate to touch on climatology and climate change, about which I know even less than I do about meteorology. Is there such a thing as global warming? Is it man-made? Such questions also touch on the nature of scientific prediction and on issues of cause and effect. From a personal point of view all I can say is that it does seem from the overwhelming bulk of the evidence provided by science that the earth is warming and that this doesn’t seem to be just another of the normal and natural cycles of changes in the climate witnessed on the planet. Rather it does appear to be caused by mankind. Even with my limited knowledge of physics and chemistry, I think it stands to reason that if you pump lots of gases with known properties into the atmosphere, it would be strange if they didn’t produce the normal physical and chemical effects – i.e. warming.

The point I would like to make here as it relates to the nature and limits of prediction is this: Assuming that the conventional scientific wisdom on climate change is correct, it’s still quite unlikely that the trend in rising temperature will be a neat linear one – that the cumulative build-up and concentration in the atmosphere of gases such as CO2 will lead to a parallel incremental rise in the world’s average temperature. The study of the deep history of the earth’s climate plus an understanding of biological evolution and eco-systems, has quite clearly demonstrated that physical and biological systems often jump almost instantaneously from one condition to another (from one equilibrium to another if you prefer). These jumps are often referred to as “tipping points”. We see similar “phase transitions” in physics.

Potential tipping points are understandably one of the fears of climate change scientists – not to speak of the rest of us. In terms of prediction, although we know that such tipping points have happened and do happen, because the climate is undisputedly a complex system, and I would argue a complex adaptive system at that, we might probabilistically suggest that such jumps, or tipping points, are quite possible in the future due to global warming. But I don’t think we are in a position to predict with any certainty or accuracy when such a jump will happen nor its extent and nor what the precise trigger for it might be.

I want to use these examples from the physical sciences as analogies for economics. Not, I hasten to add, as strict equivalences.

In the example I gave of driving along a straight motorway, the reason we might be able to predict where we will be in a few seconds is momentum. And so, as I suggested, short term predictions of key economic variables such as inflation, employment, growth etc also depend on momentum, coupled with the data provided by some key available leading indicators.

But think about it. Driving a car is not an exclusively physical act; it is also a social act. There is an actor – the driver. This actor, or “agent” as we might call him or her, has a whole raft of characteristics. Just two of these are that he has volition to choose or to decide at any moment what to do, and he can also adapt to the circumstances he finds himself in. If a motorway exit suddenly appears the driver can decide either to turn off the road or stay on it. If he turns off he will make our simple mechanistic prediction based on momentum wrong; even though he won’t break any physical laws.

The economy is in many ways a Complex Adaptive System

The economy and anything remotely economic is like the situation of the driver writ large. There are millions of individual, collective and institutional agents continually making choices and decisions – i.e. exercising their volition. They are also adapting their actions according to the actions of others and the collective result of all these actions. That’s life. The economy is very decidedly a complex adaptive system. From the point of view of economic prediction it doesn’t really matter if the “rules” used by the actors to help them make their decisions are completely “deterministic” or if there are also a stochastic “shocks” as well. Even with completely deterministic rules, the longer term dynamics of any complex adaptive system are, in the real world as well as in modelling, pretty much non-predictable. Why so? Surely if, like with the weather, we knew all the rules and all the initial conditions of every actor/agent, we could predict the outcome? The answer to this question is that “Yes” in theory we could. Unfortunately for the purposes of prediction the physical, social and economic worlds don’t work like that. Not only do we not know all the rules (I’ll leave that to one side) but if you change the initial conditions of any single actor/agent even in the tiniest degree then the collective result, after a bit of interaction, will not just be slightly different, it will be completely different – and this you can’t predict ex ante, before the event.

Quite categorically this means that economic predictions, even if they could be based on fully deterministic mechanistic rules and modelling (or maybe any type of modelling), will never be able to forecast the timing and magnitude of economic events with any accuracy over more than the short term. They decidedly can’t predict the future positioning and situation of individual agents. This has actually been the experience of economics. It has rarely been able to predict anything of any great macro importance by using conventional neoclassical theories and associated modelling techniques. Occasionally a prediction might get lucky and will no doubt be much trumpeted as a great success for the predictor and for his/her economic model. Yet I do tend to think that these rare “successes” might better be explained in terms of “Black Swans” and the like, so persuasively discussed by Nicholas Taleb Nassim.

Where does that leave us? Strange though it might sound, I do actually believe that economics can make some very insightful and useful predictions or forecasts; but they are not of the type I’ve discussed thus far. Rather they have to do with cyclicality or, more generally, with regularly repeating patterns.

Take the latest banking and financial crisis; a crisis that will inevitably lead to the gradual impoverishment of countless ordinary people throughout the world over the next decades, despite the fact that it wasn’t in any way their fault.

We know that most conventional economics (and unfortunately that means the neoclassical economics I studied for so many years) failed to predict this crisis. Economists and central bankers (not to mention ideologically driven politicians and greedy investment bankers) continually asserted that all was well in the world. When the crisis hit it was rather amusing, though a little sad as well, to witness the spectacle of Queen Elizabeth, when she visited my alma mater, the London School of Economics, asking why economists hadn’t seen the crisis coming. There was lots of embarrassed huffing and puffing and subsequently quite a bit of blather about how economics should take more account of “systemic risk” and such like. But there was no real answer. Actually most economists and even policy-makers have by now admitted that “there was something wrong with our models”. This crisis simply shouldn’t have been able to happen. Even central bankers such as Alan Greenspan and Mervyn King admitted this; not to speak of some of the more honest archpriests of the intellectually and empirically vacuous bunkum that is called “Modern Finance Theory”. In economic circles what then happened was that economists dashed around like chickens without heads (as a very senior central banker once told me), trying both to stick on a few patches and retrofit their theories to the experience of events. One commentator on something I recently wrote to this effect even said that it would be better to say that they “retrofitted the facts or denied them completely”. That’s probably fair though a little hard.

In true sciences if a theory is shown by experiment to be unable to make accurate predictions, or even not to be able to explain what has happened after the event then, despite many entrenched reputations, it is eventually abandoned. This doesn’t seem to be the case in economics. I think the reasons have to do with power, but that’s for another time.

Hyman Minsky was one economist who saw repeating patterns – His work has proved useful to understanding the present crisis

Yet certain economists did actually predict that there would be a banking crisis and a subsequent economic meltdown. Perhaps not that many; but there were quite a few. Let me just mention the Australian economist Steve Keen in passing – I’ll quote more such if need be. Such economists knew, either explicitly or implicitly, that the economy and the banking system were both complex adaptive systems. Thus they never dreamed of making point estimates as to the timing of the onset of the financial crisis nor its magnitude nor, indeed, what might be the triggering event. No, what they did, with an understanding of some very simple economic principals, was to see that the developing economic dynamics (for example of the build-up of the levels of absolute debt) were displaying a known historical pattern. We had seen this before and we had seen the results. How could it not happen again? Something was bound to crack. We can term such events Minsky moments or something else but the fact is that their predictions were predicated on an understanding of “cyclicality” in the economy – an understanding of historical dynamics, repeating economic patterns and how and why these patterns arise.

On the other hand, neoclassical economists do tend to have a sort of collective amnesia when it comes to the past. They don’t seem to have learned anything from what’s gone before. To be sure these cyclicalities and patterns of economic dynamics aren’t in any way like the regularity of the amplitude and frequency of physical waves or the regular ebbs and flows of the tides. They’re not even like the cycles of various economic “trade cycle” theories once so beloved of economists. How could they be! Anyone who has ever looked at the dynamic properties of complex adaptive systems will know that sometimes a system will start to oscillate. These oscillations might be explosive or they might die down, only to appear once again, possibly after a long period of relative stability, but in any case certainly totally unpredictably. But what economics can try to do, and is increasingly doing, is not to predict precisely when a particular event or “crisis” will occur, or even to suggest what might trigger it, which is unknowable. Why not Northern Rock or Bear Stearns? Why Lehman Brothers? Rather what they try to do is look at the prevailing economic conditions and how these are developing through time (and space) and predict, with a decent knowledge of real economics and economic history, what seems likely will happen. It’s not much, but that’s what the economics profession can do in terms of prediction if it puts its mind to it.

Economic prediction will never be a precise science, if it’s a science at all. But, I would like to suggest, useful predictions can be made if we use what we know about how economies really work and tend to evolve (and we know quite a bit) coupled with a greater historical awareness.

In terms of economic modelling and the use of mathematics in economics, both of which I support, the main questions to ask of models are: What are we using this model for? And what are we trying to predict with it? A topic for another day.

Ultimately I think it’s the explanatory power of economics more than its limited ability to predict that is of crucial importance. If we understand how and why something has happened it will go a long way towards enabling us to create a system that might limit the deleterious things we wish to avoid.

There is an English expression that tells us that you can’t make omelettes without breaking a few eggs. This is usually taken to mean that in order to achieve something or make progress there are often losers in the process – true enough though a little hard. With a slight change of verb we can also state that: “You can’t make omelettes without using a few eggs.” This might sound blatantly obvious but its truth seems to have escaped not a small number of commentators on environmental issues and, it is sad to say, even some eminent economists as well. They tell us that as technology progresses we can dematerialize the economy – so we needn’t be too concerned about any supposed limits of resources or energy.  Of course this is fallacious; to use a nice Anglo-Saxon word, it is codswallop. But why?

If you don’t believe that such arguments for dematerialization are still put forward, consider these three recent examples:

Jesse Ausubel and Paul Waggoner write:

If consumers dematerialize their intensity of use of goods and technicians produce the goods with a lower intensity of impact, people can grow in numbers and affluence without a proportionally greater environmental impact.

Ronald Bailey of the neoconservative Reason suggests:

As long as market-driven technological progress is allowed to proceed, taxing and hectoring people into increased material poverty is not necessary to protect the natural world. And as polls show, people won’t put up with it anyway.

While Marian L. Tupy, of the similarly politically oriented Cato Institute, in an article entitled The Miracle that is the iPhone (or How Capitalism Can Be Good for the Environment), concludes:

Dematerialization….  should be welcome news for those who worry about the ostensible conflict between the growing world population on the one hand and availability of natural resources on the other hand. While opinions regarding scarcity of resources in the future differ, dematerialization will better enable our species to go on enjoying material comforts and be good stewards of our planet at the same time. That is particularly important with regard to the people in developing countries, who ought to have a chance to experience material plenty in an age of rising environmental concerns.

There are many more.

I have sincerely tried to find some validity in such arguments. I’d really like to; but try as I might I can’t.

Dematerialization – An answer to ecological and energy problems?

Utterances such as these are just one manifestation or variant of the belief in “techno-fixes” to the ecological and energy crisis we find ourselves in. They are reassuring but they are wrong. They need to be consigned to the dustbin of sloppy thinking. So let me try to do that, both from a strictly physical point of view and from the vantage point of real economics.

What lies at the heart of the physical arguments for dematerialization, such as they appear both in the quotations I have given above and elsewhere, is the view that as technology advances we are, and will be, more and more able to produce the same quantity of “goods” with less and less resources and also, indeed, that certain goods won’t require any resources at all.

Consider a couple of examples. Thirty years ago I had a stereo system that took up half my small room. Not only was there the large and beautifully designed turntable but also I had to have huge amplifiers, immense loud speakers and even separate “woofers” and “tweeters”. Nowadays, or so the argument goes, we can buy tiny iPods, mp3 players or mobile phones that can store and play thousands of songs – and films and books as well. Surely these use much less (material) resources to produce the same result – listening to music? Another line of argument cites supposedly truly dematerialized goods, like the information stored on software or on the internet. No need for printing books and the associated cutting down of trees!

In the case of iPods and the like I’ll ignore the use of fossil fuels or other energy sources involved in their production and transportation, as well as their use of some decidedly limited natural resources, such as noble metals. But even so it’s still not the case that these types of goods are dematerialized – they are not. For sure they do directly use less materials, such as wood, metal and plastic, in their manufacture than did my huge stereo system, but they still use resources and when we add in energy use to the equation maybe not that much less.

In the case of computer software and the internet, I’ll also put to one side the fact that these have in no way diminished the use of paper – our printers are churning out hard copies in ever greater quantities. Not only that, you can’t use software or the internet without a physical, materialized, computer. Anything that might appear dematerialized needs something material to make it useful, and that means the use of natural resources and, without doubt, energy as well.

Before considering the economics of all this, let’s take a look at physics. The dematerialization argument completely ignores the first two laws of thermodynamics. The first law, called “the conservation of matter and energy” tells us that you can’t make something out of nothing and hence, as ecological economist Herman Daly puts it: “All human production must ultimately be based on resources provided by nature.”

The argument for dematerialization completely ignores the first two laws of thermodynamics.

The second law of thermodynamics is usually called the entropy law. In non-technical terms this basically tells us that in any closed-system without the input of energy everything will, over time, deteriorate from order to disorder. Everything will become some sort of dead mush. In universal terms a “heat death” which is irreversible. Entropy increases. Not only that, but only things with order can do work and be useful. Over millions of years the sun has supplied energy to allow trees and animals to grow. The trees have order and we can burn them either to do work, to produce useful energy, or to make “ordered” goods. But after that we’re just left with useless waste. Plants die and are fossilized as oil. Oil has order and we can use it, but again after the work we’re left with “high entropic” waste in the form of heat and gases (such as CO2).

Whether in physical or economic terms, the production of any physical thing that has some order, and is thus useful and not a mush, requires either pure energy (as from the sun) or energy stored in matter. Remember Einstein showed energy and matter are convertible.

When asked whether the transformations of matter and energy required by economic activity are constrained by the entropy law, the usually very thoughtful Nobel Prize winning economist Robert Solow replied:

No doubt everything is subject to the entropy law, but this is of no immediate practical importance for modelling what is after all a brief instant in a small corner of the universe.

To which Herman Daly rightly responded:

Solow seems to identify the entropy law only with the ultimate heat death of the universe. … But the entropy law has more immediate and relevant implications: that you can’t burn the same lump of coal twice; that when you burn it once you get soot, ashes, CO2, and waste heat, as well as useful heat. The entropy law also tells us that recycling energy is always a losing proposition, that there are limits to the efficiency of conversion of energy from one form to another, and that there is a practical limit to materials recycling – all in the here and now, not just in the cosmic by and by.

If you want to produce anything at all you need both matter and energy and if you want to produce something with order and structure (and production and consumer goods are absolutely prime examples of this) you need to use at least as much (low entropy) energy and resources as inputs to achieve this as what you will get as outputs. In fact because of the severe wastages in the production process you usually need to input much more than you get out.

To think that physical goods can be produced without physical inputs and energy is to show not the slightest understanding of thermodynamics and science in general.

We can see this impossibility even more clearly when we look at what we actually need, desire and buy. We don’t live by iPods and software alone – though some teenagers seem to believe this to be the case. What do miniaturized or dematerialized houses, cars, planes, refrigerators or production-line robots really look like? Have you ever seen one? Will you?

Let’s look at the iPod/internet example again but this time from the point of view of some simple, though real, economics.

In the 1970s, my stereo “sound system” cost a lot of money. I had to save for some years to be able to afford it. As technology has advanced, not only have things got smaller but they’ve also got cheaper. It costs my daughter only a few weeks pocket money to be able to buy an amazing iPod. I’m even thinking of getting one myself. But what happens when such prices come down? Do we as individuals or as a society generally say: “Well that’s great! I can now use this freed-up disposable income to save for my retirement or give to charity?” In general we don’t. No, what we humans tend to do is go out and buy more stuff – more cars, more computers, more TVs and more mobile phones. This tendency is even exacerbated by the fact that consumer goods are now invariably designed with built-in obsolescence. Your mobile phone or computer starts to play up and go slow after a couple of years. Not only that but in the meantime there have appeared newer models with lots of additional “functionality”. No worries! We throw away the “old” mobile and buy a new one.

The first economic point is this: As technology improves and prices of technological goods fall, we don’t just buy the same amount of stuff (products) using less materials, what we do is buy more of the same stuff and lots more other stuff as well. The marginal propensity to consume out of technologically driven price reductions and the resulting extra disposable income is basically one. Never in the field of human economies has technology and miniaturization ever led to less demand and less resource use and I doubt it ever will. Demand for goods, demand for stuff, is infinite, and as in Say’s law, supply creates its own demand.

Coventional economic “Production Functions” ignore factor complementarity and assume complete substitutability as well as multiplicity.

A bit more economics. How we produce things has long been a central component of economics. Usually this is encapsulated in something economists call a “Production Function”. To use Adam Smith’s example of the production of pins, let’s think of ourselves as manufacturers of pins. I can decide that everything should be made by individual craftsmen, each of whom will take a certain time to produce a pin. The cost to me, before I add in my profit, will be the cost of the craftsman’s wages plus the costs of materials. On the other hand, I might decide that it would be better if I employed a bit of “capital” as well. I could use some capital goods – i.e. machines. If I do this I should be able to employ less labour. I can substitute capital for labour. Although the size of the available machines might be somewhat “chunky”, in general I can choose whatever combination of capital and labour will maximize my profits and chose the optimal combination accordingly. The key point is that the two factor inputs, capital and labour, are substitutes – more of one and less of the other. Economics takes a further step and considers technological progress. As technology advances I can produce more pins with the same amount of both capital and labour. Or I can produce the same with more capital and less labour.

But what is not explicitly considered is the role of natural resources – the metal, wood, and energy that is of necessity used. In economists’ production functions if these are considered at all (and usually they are not) they are seen as just another factor of production which can be had in unlimited quantities at the prevailing price.

Most importantly for the dematerialization issue is that just as capital and labour are viewed as substitutes for each other, so too are raw materials and energy viewed as substitutes for capital and labour.

Robert Solow, the “father” of modern growth theory wrote in 1974;

If it is 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.

Although this seems like a conditional sentence (if…then), Solow and many other economists have assumed it to be true.

 In 1972, economics professors Nordhaus and Tobin put it thus:

The prevailing standard model of growth assumes that there are no limits on the feasibility of expanding the supplies of nonhuman agents of production. It is basically a two-factor model in which production depends only on labor and reproducible capital. Land and resources, the third member of the classical triad, have generally been dropped… the tacit justification has been that reproducible capital is a near perfect substitute for land and other exhaustible resources.

Without any equivocation this means that I should be able to produce more and more pins by using more and more capital and/or labour while using less and less materials. But in the real world – if we can escape the fantasies of neoclassical economics – raw materials are not optional; you can’t endlessly substitute capital and labour for them. In fact raw materials are “complementary” to capital and labour – you need both.

Returning to making omelettes, if I  want to make some I can ask lots of my friends over to help me cook – to provide more labour – I can even invest in lots of stoves and pans. But however many friends, stoves and pans I have I can’t make any more omelettes than my supply of eggs will allow. If I have two eggs then maybe I can make one decent omelette on my own with one pan and stove. Adding more capital and labour will not change this equation. I can’t make 100 omelettes with two eggs however many friends and stoves I throw at the problem.

Not only does conventional economics assume that raw materials are complementary, it also assumes that the output gained from all factors of production are multiplicative, even if natural resources and land are included:

Most production functions are multiplicative forms – that is, the relationship among the factors is one of multiplication (e.g. the Cobb-Douglass production function). After all, what could be more natural than ‘multiplying’ together things that we call ‘factors’ to produce something we call a ‘product’! Unfortunately there is nothing in the real-world process of production that corresponds at all to multiplication. There is only transformation. This means that substitutability is built into these production functions from the beginning as a mathematical artefact, including substitutability between r (resources) and K (capital), and r and L (labour) – between funds and flows. In these multiplicative production functions, we can make one factor as small as we wish, while keeping the product constant, if we increase the other factor sufficiently. The only restriction is that no factor can be reduced to zero, but it can approach zero. But according to this logic, if our cook is making a 5-pound cake, he can increase it to a 1000-pound cake with no extra ingredients – just by stirring harder and baking longer in a bigger oven! – Herman Daly.

Making omelettes is a bit like putting Humpty Dumpty together again. Once you’ve cracked the eggs all the king’s horses and all the king’s men can’t put the egg back together again – the process is irreversible. Cracking eggs, like everything else, increases entropy.  I can eat a raw egg if I want and the energetic order in the egg will be converted into useful energy to keep me alive and, sometime later, will produce a bit of waste as well. If you want to make a tasty omelette or maybe a cake then you’ll have to add some extra ingredients as well. But make no mistake, absolutely anything we want to make that will be useful to us must obey both laws of thermodynamics.

In the real world you can’t make omelettes without using, and breaking, a few eggs. Dematerialization is a myth. A dematerialized economy is oxymoronic – and possibly the shortened version of this word as well.

If we are going to examine seriously possible reductions in the use of energy and material resources in the economy then let’s at least start with some grasp of physics and economics.