The Dark Present
Everything is awful. Blame economists.
Hi! I hope you enjoyed the sunshine in the Brighter Future. Unfortunately, today’s newsletter is a return to the Dark Present, with a timely reminder that everything is danged1 and it’s all economics’ fault.
Well, that’s not 100 percent correct: it’s lots of people’s fault, especially the governments who’ve refused to reign in the mad paper-clip machine of capitalism and have set civilisation on a course straight for the heart of the Sun, but neoliberal, orthodox economists deserve an outsize share of the blame for chaining the rest of us to the mast so all we can do is watch. And William Nordhaus is one of the crew — standing on the shoulders of giants like Milton Friedman and Friedrich Hayek — who’s done the most incalculable damage. When our kids ask us “Who killed the world?” we’ll be able to confidently answer “This guy.” The Intercept has the horrible details. Briefly paraphrased, the scoop is that Nordhaus’ theories that calculate the economic impacts of climate change are bollocks.
Nordhaus’s models tell us that at a temperature rise somewhere between 2.7 and 3.5 degrees Celsius, the global economy reaches “optimal” adaptation. What’s optimal in this scenario is that fossil fuels can continue to be burned late into the 21st century, powering economic growth, jobs, and innovation. Humanity, asserts Nordhaus, can adapt to such warming with modest infrastructure investments, gradual social change, and, in wealthy developed countries, little sacrifice. All the while, the world economy expands with the spewing of more carbon.
His models, it turns out, are fatally flawed, and a growing number of Nordhaus’s colleagues are repudiating his work.
Yes, it turns out that Nordhaus’ work is pure copium, so attractive and addictive that it’s been mainlined by everyone from corporates to governments to the IPCC.
Johan Rockström, director of the Potsdam Institute for Climate Impact Research in Germany and a leading researcher on climate tipping points and “safe boundaries” for humanity, projects that in a 4 C warmer world, “it’s difficult to see how we could accommodate a billion people or even half of that.” Global population today stands at 7.6 billion, with 80 million people added every year.
By contrast, when Nordhaus looked at the effects of 6 C warming, he did not forecast horror. Instead, we should expect “damages” of between 8.5 percent and 12.5 percent of world GDP over the course of the 21st century.
He’d have gotten away with it too, if it wasn’t for those darn meddling laws of thermodynamics.
Start with your typical textbook for the dismal science — say, the definitive one by Paul Samuelson, co-written with Nordhaus, titled “Economics.” The book is considered “the standard-bearer” of “modern economics principles.” You’ll find in its pages a (…) simple, imperturbable closed system that’s also ludicrous, fantastical, a fairy tale. In the circular flow diagram of standard economics, nothing enters from the outside to keep it flowing, and nothing exits as a result of the flow. There are no resource inputs from the environment: no oil, coal, or natural gas, no minerals and metals, no water, soil, or food. There are no outputs into the ecosphere: no garbage, no pollution, no greenhouse gasses. That’s because in the circular flow diagram, there is no ecosphere, no environment. The economy is seen as a self-renewing, perpetual-motion merry-go-round set in a vacuum.
So how does it all work? Nordhaus’ theories are, of course, predicated on the fairy-tale of endless economic growth. Pry the lid off the voodoo equations of orthodox economics and you’ll find the same basic fallacy over and over again: line goes up.
In DICE, the effect of a warmed climate is measured solely as a percentage loss (or gain) in GDP. Growth of GDP is assumed to be “exogenously determined,” in the language of economics theory, meaning it will persist at a set rate over time regardless of climate shocks.
Like other orthodox economic fallacies such as the Phillips Curve — an illustration of the idea that having too much employment causes inflation, so having unemployment must necessarily un-cause it — Nordhaus’ DICE model is based on a fundamental misuse of mathematics:
The second of Nordhaus’s errors is the use of reductionist mathematical formulas. He employs something called a quadratic to calculate the relationship between rising temperatures and economic outcomes.
Economists are always doing this. They love nothing more than finding a concept that’s hideously complex and intrinsically non-linear and drawing crayon-like curves all over it. But wait, it gets much, much stupider.
The third of Nordhaus’s errors is related to similarly simplistic formulas. Nordhaus calculates GDP of a particular location as fundamentally related to the temperature of that place.
What — and I really must stress this — the dang. How does economics manage to elevate such abject, obvious idiocy to the pinnacle of the profession? The assertion is self-evidently untrue. GDP is not a function of your danging latitude. Nor is it a function of Nordhous’ next colossal mind-fart:
The fourth fatal error Nordhaus makes is the most farcical. In a 1991 paper that became a touchstone for all his later work, he assumed that, because 87 percent of GDP occurs in what he called “carefully controlled environments” — otherwise known as “indoors” — it will not be affected by climate.
It really has to be said again and again: dang economics.
Lest we forget, it’s also orthodox, neoliberal economics that has gifted us the currently-in-vogue method of dealing with climate change: carbon trading and emissions offsets. Let’s be clear: setting a price on carbon pollution is a good thing. But economists have, of course, poisoned the well of carbon pricing with carbon offsets: the idea that we can make up for burning carbon here by not burning carbon there, and that we can turn not-burning into licences to burn carbon. Factor in the idea of the world ploughing its valuable energy resources into mostly hypothetical technology to suck carbon out of the air and turn it into worthless dry ice and boom, you’ve got a plan to save civilisation — one that, typically for economics, makes no danging sense. Cory Doctorow has the goods:
[Carbon offsets allow] companies to make money by promising not to emit carbon that they would otherwise emit. The idea here is that creating a new asset class will unleash the incredible creativity of markets by harnessing the greed of elite sociopaths to the project of decarbonization, rather than to the prudence of democratically accountable lawmakers.
Carbon offsets have not worked: they have been plagued by absolutely foreseeable problems that have not lessened, despite repeated attempts to mitigate them.
For a break from all this, let’s look at journalist David Williams’ deep dive into what NZ’s local enemies of climate action have been up to lately. Ah, of course. They’ve been working to elect climate change deniers, minimisers, and delayers, in the form of the Act and National parties:
In the Taxpayers’ Union’s first press statement, in 2013, its founders described it as “a politically independent grassroots campaign to lower the tax burden on New Zealanders and reduce wasteful government spending”.
The independence claim has been repeatedly knocked.
In Dirty Politics, Hager wrote the Taxpayers’ Union “operates, in effect, as an arm’s-length ally of the National Party” and called it a “political tool”.
The following year, political scientist Bryce Edwards described the Taxpayers’ Union to the NZ Herald as “the Act Party in drag”.
A huge share of the blame for the Taxpayer’s Union’s success can be laid at the feet of news media, who essentially let political actors like the TPU and the Act party do their jobs for them. These groups function as press-release factories, churning out readymade news for conflict-hungry media, who are only too happy to both-sides climate-denying hysteria-bait about (for example) cycleways if it leads to them getting a few more clicks. They also make themselves permanently available, always ready to feed a juicy, conflict-loaded, nuance-free soundbite to the media maw. Witness the Spinoff’s live updates editor telling on himself as he complains that David Seymour won’t pick up the phone anymore:
During the Judith Collins years, he twisted this level of availability into becoming a de facto opposition leader, commonly leading coverage where the National Party leader would traditionally be found. If you couldn’t get a comment out of National, you’d get on the blower to Seymour and he’d give two or three well-communicated soundbites on just about anything.
Most journalists would ring him directly, or text him and expect a return phone call within minutes. On one occasion, he called me via a bluetooth bike helmet and I did the interview while he was cycling around his local electorate.
“Well-communicated soundbites!” I’m so sick of this stuff from journos. When will they learn that their job is not to hand out praise to politicians based on well they spin the issue du jour? That it’s not to give space to people — especially not powerful people — just because they’ll pick up the danging phone? Of course David Seymour’s not answering your calls: he’s in negotiations for his real job — attacking indigenous rights and sabotaging climate change action. What’s left of the (broadly) reputable Fourth Estate needs to figure out where it stands on climate change, ideally yesterday, and to stop platforming climate change deniers, delayers and minimisers like David Seymour and the Taxpayers Union without conspicuous disclaimers about what their policies and actions are and mean.
While I’m on the subject of lazy media, here’s another ghastly habit that can get in the bin and die: the uncritical repetition of political and economic myths. From yesterday’s Spinoff Bulletin newsletter, we get this:
By now, we all know the orthodox drumbeats: when employment levels are high, wages rise faster. People have more money to spend, so prices go up and so does inflation. When unemployment is high, the lack of money to spend means that inflation goes down. It is our old mate, the Phillips curve, conceived by New Zealander Bill Phillips. A consensus of bank economists ( paywalled, and is that the collective noun or just an accidentally clever allusion to it by Liam Dann?) is picking that the unemployment rate will have risen. Most are pinning that prediction on high levels of migration.
It’s nice that we seem to be gradually approaching the point where people might finally start saying the quiet part loud: unemployment is largely a political and fiscal choice, designed to keep wages (and inflation) suitably low; but what’s not being said is that simplistic economic concepts like the Phillips Curve are at best contested and at worst bunk. Even orthodox economists have had enough of the Phillips Curve: witness the ultra-neoliberal Cato Institute call it a “broken theory” and “a poor tool for policymaking.” So here’s another reminder, because you can never have enough: the broken idea behind raising interest rates is to make people lose their jobs and/or houses so inflation might come down.
The fact that inflation might happen not just because people have jobs, and could just as easily be attributed to supply constraints and massive corporate profiteering doesn’t seem to matter, least of all to media who are happy to keep repeating economic myths and making space for climate change creators.
On that note, and in good news for no-one but economists, there are signs that the Reserve Bank might finally be succeeding in engineering its longed-for recession:
The below, earlier issue of Hickey’s newsletter is well worth reading, not least because he shares some gobsmacking tidbits that should be being screamed from the rooftops by the rest of the media — like the fact that at current rates of growth (which successive Governments have both encouraged and done nothing to prepare for) NZ’s population will exceed 20 million by 2100.
And then there’s this humdinger.
A Treasury analysis of the potential costs of the Crown having to buy emissions credits to meet its Paris agreement commitments was released in September and shows the cost to taxpayers could blow out to $25.948 billion by 2030, if as expected with current policies, there is a shortfall.
This is not included in the Crown Accounts as a contingent liability. If it was, a Government would be obliged to try to reduce it, or have to explain to taxpayers why they’re spending more on emissions credits overseas than it spends on health in a year.
The other option would be to renege on the Paris agreement, which ACT has advocated, and then see New Zealand’s FTA with Europe cancelled arbitrarily.
That’s where our “but David Seymour has perfectly-crafted soundbites and always picks up the phone!” attitude gets us: the neoliberal party looks to cost us billions of dollars in worthless “offsets” that we will be forced to buy for breaching our Paris commitments by not following the ETS, a climate policy advocated for and invented by neoliberals. Of course, none of that includes the staggering costs of not sufficiently adapting to or mitigating climate change, which are going to be much, much, much more. I’d say that we should just burn it all down, but that’s happening anyway. Happy days.
After getting a tip that my swearing was making my work hard to share I decided to change all incidences of the word that autocorrects to “duck” to “dang” or something similar. It’s perhaps a bit silly — I think it is OK to be angry about bad things, and that swearing is useful as punctuation among much else — but there’s no doubt that replacing swears makes the article much funnier. The original blue-tongued article will live on, in subscriber inboxes, and you can always mentally substitute “dang” for any other word you like. ↩
