The one-handed economist

I have two unrelated thoughts on these groups…

First, the catholics and the environment

The Catholic Church knows how to sell indulgences. I suggest — in line with the Pope’s Laudato si’ (Care for Our Home) that the Church sell climate offsets (as indulgences) and then enforce their impact by calling upon members of the flock to enforce environmental laws. God knows how many believers are in countries experiencing environmental harm. God knows when they are working to protect — or harm — the environment. Let’s get God’s believers involved, as someone needs to act on what God knows!

Second, the fascists and populists

I throw around labels like “fascist” and “populist” when talking about political failures. It just occurred to me that populists tend to promise something for nothing, giving away stuff (or pride) in ways that are ultimately unsustainable (e.g., national pride turning into war).

Fascists, OTOH, take from people. They take freedom but also wealth, and they justify their theft via state needs or ideological purity. Theft is also unsustainable, as people at some point rebel or flee.

What’s interesting (terrifying) is that these populist and fascist tendencies complement each other (theft to fuel gifts), which would seem to be more sustainable, except that they reinforce each other (gift recipients are more likely to support pogroms against “enemies of the people” whose property and freedom are being stolen). We’ve seen these patterns in religious fighting, nationalist fighting, and now we’re seeing it in many populist-authoritarian states (Turkey, Brazil, Venezuela) and leaders (Trump, AMLO, Orban, Salvini, et al.). It’s a bad time for property rights — and human rights.

My one-handed conclusion is that an interest group’s ideology can be good or bad for the rest of us.

Today is my fiftieth birthday, so this post is about the big Five-O (age-appropriate 1970s theme song), i.e., some unsolicited advise and opinions from someone who’s made it this far.

1. Age gets better to the extent that you internalize your experiences as wisdom. Failure to learn from your mistakes means that aging is only about approaching death, so learning can offset that decay by helping you make better decisions and accept reality with more patience. 
2. Life begins when you leave school and your parental home to make your own decisions (good and bad). For some people, life began at 10 years old while others are still living with their parents at 30. In either case, those decisions can be scary but also liberating. 
3. In my life, I’ve found a lot more fulfillment in working for a mission instead of a wage (i.e., teaching rather than financial services). If you’re waiting to enjoy your life @ retirement, then you’re waiting too long.
4. Kids change everything. Don’t have kids until you reconsider the next 20+ years of your life. Also make sure you have a partner for raising kids, as it’s a lot of work. I’m glad I haven’t had kids, as it’s allowed me to do many other things as well as reduced my financial anxiety.
5. It’s really important to sleep well. After that, exercise and good nutrition can mean the difference between “old 50” and “young 50”.
6. There’s no one path to success, and success is what you decide, not what your parents, peers or influencers decide.
7. Retirement (living without needing to work for money) is a luxury attainable to anyone who can save while working and spend modestly while living. I plan to retire from my job in the medium term, if only to work on my hobbies and create more “public goods” to give away.
8. My only real worry is climate change chaos, as it’s going to upend nearly everything we take for granted (weather, food supplies, national sovereignty). A large part of my retirement “plan” is to avoid the worst of these impacts. I don’t know if it will (suddenly or slowly) shorten my life, but I do know that there will be problems — especially when “the masses” realize how much we’re losing.
9. When you’re fifty, you don’t need to worry about following norms, like making 10-point lists.

My one-handed conclusion is that I am happy to be fifty, glad that I have learned something in my first half-century, and interested in making the most of my remaining time alive.

My present to you: I’m going to have a series of discussions with other fifty-somethings, to get their perspectives, wisdom and bad jokes. The first FiveO-themed episode of Jive Talking, with my cousin Dave, went up today. Listen in 😉

 

I saw that movie in 1999. It was fantastical. I knew it was SciFi, but I couldn’t deny that it could have been a self-aware picture of our reality: living in the Matrix.

Putting that remote possibility aside, I think we might be walking into a version of the matrix, one that we create as our personal decisions clash and mingle in our social interactions.

Here’s what I’m thinking…

Skies on fire are coming: Atmospheric warming (the result of retaining green-house gases and the driver of climate change) means more energy in the skies, and thus more energy to dissipate via lightning and stronger storms. Will the future bring skies on fire? “We don’t know who struck first, us or them, but we know that it was us that scorched the sky.” — Morpheus, in The Matrix. There’s a very interesting discussion of whether The Matrix, which takes place in the future, is actually a prediction based on our current polluting habits, which are burning the skies and thus making outdoor life  uncomfortable, via heat, storms, angry people. 
The point: We are burning up the earth, so perhaps we will retreat into a Matrix

Machine control: The 1 Percent (more properly, the 0.1%) have ridiculous wealth, and thus power (via corrupt institutions), meaning that a lot of us lack control we think we have. I’m sure some people are living 100% free, and I feel about 80% free, but I think that many  people — people in debt, with poor health, and/or insecure from any of a dozen fears — these people are somewhat controlled by the 0.1 Percent. How many people or countries does this apply to? I’d answer in the negative by saying where it does NOT apply: In maybe a dozen countries with 500 million citizens, where politicians work for citizens rather than the rich. For the other 6.7 billion people in the world (including Americans), control is lacking.* This reality, I think, underlies some of the attraction of video games and social media. Those “apps” allow people to “succeed,” via (own paced) effort and (algorithmically-stimulated) skill.** 
The point: Lost control is more acceptable when you have some other means of feeling in control, and the virtual worlds deliver that feeling.

It’s sustainable: As more citizens escape into AI landscapes, there is less pressure on resources, which is good for the planet’s recovery as well as making it easier to maintain the Matrix. It also makes life better for the 0.001% who are paying for all this, via universal basic income [for people plugged into the Matrix]. Turning from fiscal to ecological sustainability, we know that water, food and shelter will be very basic due to exhausted waters, soils and air. Habitats will supply recycled wastewater and lab-grown food in a personal space of 4m² (40 freedom units²). Small habitats reduce costs and footprints. Since nobody will need to commute, vacation or move (why bother when you live online?), many transportation resources will also be saved. Note that people will not necessarily physically plugged in (like in The Matrix) but mentally so.

My one-handed conclusion is that a large percentage of the world’s citizens are mentally checked out or preoccupied by fear and need to survive. These people will be happier checking into the Matrix of fantasy internet lives. On the “supply side”, the increasing need to live in climate controlled spaces, eat and drink manufactured and purified food, and lack of options due to inequality makes moving into the Matrix more attractive. I see a lot of zombies walking around these days, lost in their fantasies. Will they opt in — or have they already?

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* George Orwell’s 1984 is ever more relevant: “The crucial issue was not that Trump might abolish democracy but that Americans had put him in a position to try. Unfreedom today is voluntary. It comes from the bottom up.”
** Note that those apps also take more of our time, leaving us with less time “out of the bubble,” which is a crucial input to working with the complexities of people — and thus why it’s not always the point to get your way.

I wrote this for my newsletter, but it’s worth reposting here… as well as adding more based on some reader feedback.

People usually say “Amsterdam is burning” for Pride week (started Saturday), but we’re really burning up. The last few days have seen record temperatures in the Netherlands (as in never recorded at this level) and Europe. It’s 30C in my office (86Freedom units) and it’s going to be 37± later today. The Economist writes the obvious: Record temperatures in Europe and the US are the result of climate change. Also read the article for its discussion of “attribution,” as in, “these temperatures (or this hurricane) are 5x more likely due to climate change.”

I think our name for these trends needs to change again. We’ve gone from global warming to climate change, but I think climate chaos is clearer. (Others have added a new season: The Bad Season.)

What does climate chaos mean? “At Amsterdam’s Schiphol airport the taxi runways are being sprayed with water to stop it from melting.” Or here’s a personal example: I ordered an air conditioner* for delivery yesterday, but PostNL’s IT systems failed, and it’s a day late. (Sleeping last night with 28C indoors was not easy.) Can PostNL blame record temperatures? Maybe. Maybe that’s why Schiphol’s fuel systems also failed on Wednesday, stranding thousands of passengers.

Speaking of flying, I flying Tuesday (hopefully) for a week in California. Is this another selfish act *like the A/C purchase, above? Yes and no. Yes because I am flying and buying an A/C, both of which contribute to climate chaos. No because it’s my best response to two failures of collective action: In California, my 86-year old dad has no safety net so I need to fly there to sign service contracts with private providers. I also need to buy an A/C because so many politicians have decided that it’s more important to make money now from burning oil than protect our atmospheric, earth and oceanic commons — and our futures. Since 90+ percent of people will follow in my logic (rather than the logic of that noble minority that will denying themselves everything to help the collective), we’re going to see a lot more damage result from our attempts to avoid damage.

These days, I cannot be too pessimistic about where we’re going as a species, but I have a few ideas. First, we’re going to suffer damage via a thousand little cuts (e.g., delayed flight, dead trees, or falling oxygen levels) that will reduce our quality of life for the first time since the beginning of the Industrial Revolution. (People will not be able to handle this psychologically, socially or politically, since our institutions are built on growth and increasing prosperity.) Second, people are going to divert more time, money and resources to adaptation. In 2052: A Global Forecast, Jorgen Randers (of the team behind Limits to Growth) suggests that this spending will help mitigate climate chaos, but I think that damages will be coming too fast for us to notice that upside. Third, I think that a slow shift in our spending and behavior will turn into a tidal wave that will overwhelm the “old economy.” Demand for quality of life goods (everything from new electronics to cars, to larger houses) will drop as people shift to defensive spending. These shifts will hit share prices (thus portfolios and retirements) and jobs (thus housing markets), leading to a massive panic to dump shares, sell houses, and so on. (Will the rich be immune, in their enclaves? Only in the sense of The Titanic.) I’m not sure if this panic will take 10 years or 1 year, but it’s going to have bigger economic and social (and thus political) impacts than the Great Recession.

We could have prevented most (if not all) of this if political leaders had embraced change 40 years ago. Even oil and gas companies could have pushed the effort along, if they had been sufficiently and persistently motivated to shift their focus to delivering energy (I still think there’s a chance, by diverting carbon tax revenues to them), but that didn’t happen. So, buckle up: it’s gonna be a long, ugly ride down 🙁

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(1) WA responded with:

I definitely share your pessimism about the future. In particular, I get anxious thinking about climate change and our future well-being (socially, economically, etc.). I know there are people who fear this future less, and emphasize our ability to adapt. They also have many historical examples on their side. I would say I’m more susceptible to the “this time is different” reasoning, and if there was ever a time this was right, I think it has to be for climate change/chaos. Yet at the same time, to try and save for retirement (~35 years out), I think the only option is to maintain an optimistic view of the world and tuck away as much of my paycheck as possible into low-cost, equity based funds.

I guess my question would be, do you see this “massive panic” as something that would eventually lead to a result where we right our course? I.E., we’re going to sustain self-inflicted wounds, but at least there would be some albeit slow course correction. Would you take a similar “optimistic” approach about investing for a longer time horizon? I feel like if I don’t adopt this mindset, I won’t at least give myself the chance to have a solid nest egg in retirement (note: that’s assuming I don’t go medically bankrupt in my elder years in this broken healthcare system). 

My reply:

“This time is different” means discontinuity, which could up-end some asset markets by 100% (similar, but different, to the way Enron’s share price dropped by 99 percent when its fraud was uncovered).

Save for retirement assumed that savings are worth something and that “retirement” can be bought. I think it’s worth putting more effort into assets (boats, land, food) and friendships, as “market solutions” will disappear. We’re seeing this now with various types of insurance against floods, crop failure…

We will not be able to “correct course” even if we want to once we pass the tipping points. We’ve not hit one this bad in human history, as climate forcing will continue for 40 years even if we stop 100% of emissions today, and GHG concentrations would not fall to “normal” (CO2 @ 280ppm) for millennia. Put differently, the weird weather, heat waves and other disruptions we’re seeing today are the result of actions dating from the early 1980s.

Finally, it’s good to be optimistic — otherwise, there’s nothing to live for — but our optimism is more likely to resemble that of gulag prisoners who find a bit of meat in their slop than winning the lottery. Dark Age Ahead.

(2) ND responded with:

What’s the economic impact of the scenario where all governments suddenly mandate to stop all CO2 emitting industries and vehicles? 

I see GDP declining massively of course. Unemployment goes up, inflation falls, we probably enter deflation. But does that mean value of money goes up? Wouldnt there be just too much money lying around for it to be worth anything, considering there is less need for it?  

And then a more self interested question: what’s the financial hedge for the above? And for armageddon? My view: invest in building a self sustaining community in the mountains. 

My reply:

A sudden stop to CO2 emissions would indeed require most industry, transport and other “lifeline” industries to shut down. There wouldn’t be a recession, but an apocalypse, as drinking water stopped flowing, electricity shut off, and so on. Only a few people, off the grid and growing their own food, would be immune. 

So that’s not going to happen. An order to phase out CO2 emissions over 10 years would do a lot less damage while protecting most of the gains, but I’d recommend a carbon tax that started at $25/ton and doubled annually (to $12,800 in year 10) as the most efficient way to kill carbon.

The impacts on GDP would be high, but not by more than 5% per year (that’s a LOT for “my dick is as big as my GDP” politicians, but not as bad as the end of civilization), especially if we stop paying attention to that flawed measure and focus on something more useful like the Genuine Progress Indicator.

(The value of money is not very important here, except if we get into international trade and other countries NOT doing anything about CO2. That’s a mess…)

As for financial hedges, I agree with sustainable community in the mountains. The break down in trade and financial markets that can result from climate chaos brings to mind an old joke:

Two economists run into each other at the coffee shop
Bob: Wow. The markets are really in trouble, and politics are worse. 
Tom: Yeah, I think it’s really bad. Losing faith.
Bob: So, what’s your investment strategy? Bonds and gold?
Tom: Nope. Guns and rice.

Be prepared.

AK emails:

What is the economically sound argument for reducing one’s water footprint (e.g. by eating less meat)? The common sense explanation goes something like this:

“There is a limited amount of freshwater that is available to humanity every year. People waste a lot of that on unimportant things. If people used water less wastefully, more water would be available for more important things. Hence, water scarcity would be reduced.”

That is, roughly, the common sense argument. But I am sure that this is the sort of question where common sense could easily be wrong, and a more accurate view of economics could provide a lot of clarity. So I was interested in your opinion. How would you describe it in economic terms?

Luckily for AK, I just wrote a draft paper on “pricing water scarcity” that deals with these topics. (I’ll be posting a draft here in a month or so, for you all to comment on.)

The key ideas here are water scarcity and waste/important, which can be mapped to supply and demand. In terms of supply, “water scarcity” means that there is too much quantity demanded at current prices for the available quantity of water. When I teach, I give students the example of 20 $0.50 beers for 20 people. At those prices, it’s probable that the 20 beers will be gone before people “lose their thirst.” At $5 per beer, that probability falls. At $20/beer, I am pretty sure that there will be beer left at the end of the night. Note that people are just as thirsty with higher prices, but unwilling to spend money that can be used elsewhere (opportunity cost) on overpriced beers. On cheap beers… they’re all in.

Also note that some people don’t like beer, at any price. In the beer example, they may not play a role, except in the long run, which allows for people to change their tastes (stopping or starting beer drinking). This discussion of preferences and tastes is not as relevant with water (we all need to drink and bathe), but it can get interesting when it comes to “marginal water uses,” which brings us to demand.

It’s pretty easy to rank our preferences (or “demands”) for different water uses, beginning with “important” (drinking water) and moving to less important (in terms of your priorities but also in your willingness to pay) uses. Watering the lawn or filling a swimming pool might be seen as “wasteful” to some people, but pretty much everyone can agree that they are less important, or that people — when faced with water prices — will demand less water for their lawns without reducing their demand for drinking or bathing water. 

We consume most of our water indirectly, via eating foods or using goods that require water to produce. A meat diet indirectly uses a huge amount of water because each animal needs to eat a lot of food (food that humans can eat) before they can be turned into meat. It’s this basic thermodynamics that explains why vegans have a much smaller “diet footprint” than meat-eaters. Overconsumption of clothes, electronics, vacation travel, you name it, also results in a heavy indirect footprint. Given that indirect water consumption is often a 100x multiple of direct consumption (a hamburger requires 660 gallons/2.500 liters vs a 5 minute shower, at 5 liters/minute) and that people around the world are getting richer, we have a lot to worry about here.

Scarce water can be rationed in a few ways. Price rationing (use as much as you want as long as you pay the price) is easy to understand. Per capita rationing (everyone gets x liters, no matter their wealth or willingness to pay) is considered fair by some people but it’s harder to manage (water taps must cut off when x is reached each day) and often results in an underground market (those who use less than x sell to those who use more). Perhaps the least efficient rationing method is bureaucratic (i.e., someone deciding that you can only use water in the evenings, cannot water your lawn, or must install a low flush toilet), but bureaucrats (for some reason) seem to like that method.

Thus, we have these facts:

• When water supply is limited, it’s necessary to forego some demands
• Everyone has their own ranking of demands, from most to least important 
• The easiest way to limit consumption to “important” uses is to set a price that allows people to pay for high-value uses while encouraging them to forgo low-value uses.
• Low prices that ignore scarcity encourage consumption of water now (on the lawn) that we might need tomorrow (for drinking).

Turning to AK’s opening (What is the economically sound argument for reducing one’s water footprint, e.g. by eating less meat?), here’s my one-handed advice: Set water prices to reflect water scarcity, and people will prioritize important (to them) over wasteful (to them) water uses. This advice, given the vast quantities of water embedded in food, will mean that people who eat less meat will save far more money than people who stop taking showers. 

So enjoy your shower, flush your toilet, kill your lawn and enjoy an Impossible Burger 😉