Economics for the future

With the summer holidays and more time to read, I came across a very informative journal paper, which was tweeted by @KateRaworth , in the Ecological Economics Journal entitled “Economics for the future – Beyond the superorganism” by N.J. Hagens – full paper can be found here. I have attempted to summarise part of the journal paper below.

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Hagens addressed the concern that are environment and economy are at a crossroads with the current model of:

Human behaviour + finance + energy + the economy + the environment = catastrophe

Most economies aim to grow at around 2-3% each year – hopefully maintaining inflationary targets and keeping apace with foreign competition. However in order to achieve this growth rate they will consumer as much energy in the next 30 years (approximately) as was consumed cumulatively in the last 10,000 years. Growth is now being driven in unsustainable ways with consumers in the developed world trying to satisfy unlimited wants and needs (which are not normally affordable) by debt.

Hagen articulates how a social species self-organising around surplus has metabolically morphed into a single, mindless, energy-hungry “Superorganism.”

Background – the industrial revolution and the discovery of fossil fuels (energy) influenced most aspects of daily life and heralded unprecedented growth. It also created new jobs with steel making processes, mass-production assembly lines etc – the high levels of agricultural productivity facilitated the labour required to run these new industries. How economies have developed – see table below.

Human behaviour -today status is an important aspect of life and although people are a lot better off than those 50 years ago it is where they rank in today’s society which counts and not absolute income. A trait of the consumer today is the stimuli and addiction to consumption. There appears to be no instinctual ‘full’ signal in modern brains and we are constantly looking for the next reward – episode on Netflix, the latest car, a new iPhone etc.

Modern economics assumes the rational brain is in charge, but it’s not. Our in-group nature facilitates fake news works and makes people doubt the belief about climate change and energy depletion. There is a strong tendency to care about the present rather than the future – the discount rate. Most of our challenges are in the future – recognition that the future exists and that we are part of it springs from a relatively new brain structure, the neocortex. Emotionally, the future isn’t real.

Energy – ecological economics recognises that real economies are completely dependent on energy. Energy = the currency of life. It is the ‘net energy’ after energy costs have been subtracted that is the enabler and driver of natural – and human – systems

Most economic theory suggests that if the price of one input is too expensive the market will develop a cheaper alternative. This is not the case with energy as alternatives have differences in quality, density, storability, surplus, transportability, environmental impact, and other factors. We can (for now) readily print money but we can’t print energy to give it value. We can only develop new sources or extract what exists faster or learn to use it more efficiently. Fig 3 below shows that fossil fuels are the foundation of the modern economy and are currently imperative to industrial development and growth.

Synthesis
Fig 8 below is a conceptualisation of the last few and next few hundred years (not to scale).
Green line = sustainable flow levels available to humanity which reached technological and geographical limits in the 19th century.
Red line = the one-time pulse of non-renewable natural resource inputs to human economies (oil, gas, copper, etc.).
Black line = financial markers (money, credit, etc.) of the underlying primary capital.

Point A – pre-Industrial era using relatively simple technology such. as sails and animal labour.
Point B – industrial revolution – humanity added the condensed stocks of hydrocarbons to previously flow-based human economies. Solow residual = the economic growth not explained by labour or capital was absent during this time because the black line and red line were tracking together.

Between B and C = energy crisis in the 1970s. Solved by using debt to pull consumption forward in time and globalisation and outsourcing to the cheapest areas of production

Point C = GFC 2008. New system – too-big-to-fail guarantees, artificially low interest rates quantitative easing, central bank balance sheet expansion and various GDP-friendly rule changes.

Point D, where our global monetary representations of reality continue to decouple from the underlying biophysical reality (red curve)

Humans to superorganism – a Tibetan monk might seek comfort by sitting alone on a wooden bench meditating but for the modern consumer achieving comfort means eating at a better restaurant, buying a better car, air conditioning or heat, fast internet, faster transportation, etc. For most people these preferences have a strong correlation to devices and processes requiring energy. Our ancestors didn’t live with Instagram, Fortnight, Teslas, sushi or Netflix. Furthermore, the hedonic treadmill, that is addictive consumption, is linked to energy use.

The consumer today doesn’t seem to have a sense of delayed gratification – waiting for something builds up you utility / satisfaction. Therefore we have a present bias in that, to quote the band Queen, ‘we want it now we want it all’. This pursuit of ‘stuff’ by consumers also explains the motivation for debt, which pulls energy and material consumption to the present.

Implications – Gross domestic product (GDP) → gross world burning (GWB)

Economic growth can only experience ‘absolute decoupling’ if we increase GDP while decreasing primary energy consumption. US senator Robert F Kennedy pointed out 50 years ago that GDP traditionally measures everything except those things that make life worthwhile. Dr Mike Ryan’s (WHO) agreed with this in his recent speech about how Covid 19 is a wake up call to how we live our lives and the fact that we can’t keep just focusing on economic growth. Yet economies still pursue the GDP carrot, often toward facetious endeavours that assure the significant financial return over the shortest time period. Although the COP27 addressed some issues to do with climate change in giving money to those developing countries that had suffered from climate change impacts, there was no agreement to reduce fossil fuel usage.

In the same way that ants pursue individual tasks for the growth of the colony, humans have outsourced our individuality to the ‘cloud’, which is itself devoid of an actual brain. N.J. Hagens

The risks associated with the reduction in energy and material well-being are two-fold:

  1. Economies need to prepare for an environment with less credit, energy limitations and the changing nature of work.
  2. The Great Simplification might emerge – a new economic system based on biophysical reality. Taxes on rapidly depleting resources, a reduction in risky lending and regulated incomes.

Whatever we’ll call it, we are desperately in need of a set of guideposts and principles that include not only ecology but also biology, psychology, physics and emergent behaviours. This discipline will focus at least as much on ‘what we’ll have to do’ as on ‘what we should do’. N.J. Hagens

Source: Economics for the future – Beyond the superorganism by N.J. Hagens.
Ecological Economics Volume 169, March 2020.

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