The one-handed economist

HH, one of my LUC students, wrote the following comment in the discussion board for my course Social and Business Entrepreneurship. I think it’s worth reading:

I think there is one area which is going backward – ‘Democracy.’ Due to tech advancement, now we can access information easily, but it is hard to verify whether it is reliable or not. Just like we had seen the American Presidential election in 2016, fake news dominated the Internet. On top of that, the same thing happened in the UK, the Brexit referendum. As Huff also mentioned in his article [PDF link], people tend to become less critical if there is too much information. It’s just out of our capacity to process everything with accuracy within a certain amount of time. Thus, people tend to go for an easy choice, believing what they want to believe, rather than evaluate information more thoroughly. Also, echo chamber effect makes it even worse. I think this is another critical challenge we are facing now – fake news on social media and the crisis of democracy. Check out this article, if you are interested in this topic: 

Also, on the discussion about poverty alleviation and progress, I agree with what A___ said: the world is focusing more on growth than achieving equality. But often what I found uncomfortable is a somewhat disparaging view towards profit-seeking companies, especially in the LUC community. I am not sure that I am the only one who felt this way, but from my perspective, money is neutral, and there is nothing wrong with pursuing it. The reason why capitalism is more successful than communism is that it understands the power of motivation and incentives. These are the foundation of innovations that make the world a better place. I believe, if they are not involved in illegal activities, purely profit-seeking firms can contribute to society by increasing productivity, investing in R&D, creating jobs, and so on. In addition, we all benefit from the products and services they sell. Only the way people use money determines the value of the money. I hope that many LUC students in the future become “successful entrepreneurs” and earn a lot of cash “ethically” and become “philanthropists.” I think it is way better than demanding the rich to share what they have. You can be the rich, and use it for the right thing.

To this, I replied:

What worries me is that some LUC’ers (and many people) take the old world view of profit as theft (zero-sum game) when the “magic” of economics is its revelation of win-win dynamics. This was why Smith (1776) was so influential.

Some people mistake economics for capitalism, which it’s not. But, worse, they also misunderstand capitalism as “=evil” when really:

“Capitalism is an economic system based on the private ownership of the means of production and their operation for profit.”

This definition and discussion doesn’t get to the important role of government, in creating the conditions for capitalism and also regulating its functions (competition, transparency, etc.)

These failures mean that those LUC’ers oppose institutions that create gains from trade and pt capital assets to good use: two main sources of our prosperity.

There are problems with markets (externalities) but there are also many problems with society (poverty) and government (corruption), so let’s keep all these issues in mind when seeking targets.

My one-handed conclusion is that many people blame capitalism for political failures.

In my most recent newsletter, I wrote:

I was surprised and upset to hear that Marty Weitzman, a Harvard environmental-economist of 77 years, killed himself recently. Weitzman brought, in my opinion, the right perspective to the costs and benefits of acting on climate change, and it was his work that motivated me to start the Life plus 2 meters project. I initially assumed he killed himself in despair over climate chaos, it seems that he was upset to not win the Nobel. (A third possibility is that the award of the Nobel to Nordhaus, who deserves zero respect for his highly flawed model and its recommendation to leave action to future generations,* convinced Weitzman that his work would not get the attention it deserves, thus sealing the miserable fate of our civilization.)

* I want to add more on that comment, which is based on two of Nordhaus’s assumptions. First, he assumes that it’s a good idea to use “market” discount rates to discuss (decidedly non-market) costs and benefits from climate change chaos (CC). I prefer Lord Stern’s view, i.e., that low discount rates (which make future damages from CC more salient in making sacrifices today to avoid CC) are more appropriate for discussing a existential threat like CC. Second, Nordhaus assumes that GDP captures the costs of CC when GDP misses many “ecosystem services” that CC will destroy (e.g., 2/3rds of our oxygen from oceanic phytoplankton). You can read his 2018 Nobel lecture in which he sticks with these flawed assumptions. Weitzman did not.

When comparing these two environmental economists, I would have preferred that Weitzman get the Nobel and Nordhaus get the Ignobel prize, which is “devoted to people who’s research makes people laugh and then think.” Nordhaus’s work is worth thinking about (and laughing at once that’s done), but it’s instead taken seriously, which explains (partially) why the world has taken no substantial steps to slow CC.

How about an example of the dangers from CC? Last week, Hurricane Dorian slapped the Bahamas with winds of up to 300 km/h and a storm surge (more or less instantaneous sea level rise, or SLR) of 8 meters (24 freedom units). That much sea level rise would devastate many coastal cities, and the Bahamas were unlucky. 

The Netherlands (where I live) is planning for 1.2 meters of SLR by 2100. What would happen if a 5.5m surge arrived? The whole country would flood, as the country’s famous “delta works” is really only configured to storms bringing a 3m rise. (Listen to my discussion with Ties on this.)

Why is this an emerging (and uncertain) threat? Because SLR is predictable but storms are not. The warming Arctic (see this month’s National Geographic) is making such conditions more and more likely.

My one-handed conclusion is that Nordhaus would be surprised at  the Netherlands getting flooded while Weitzman would not. These reactions explain (to me) why the Nobel went to the wrong guy and my sorrow at losing a real visionary on the dangers of CC.

R.I.P. Marty Weitzman.

I’m currently a graduate student/candidate for a Masters in Urban Planning. My interest are in water equity, efficiency, and conservation. My goals are to work in developing countries on water access, sustainable management of water resources and improving the water quality for existing systems. I’m contacting you in hopes of acquiring some advice or contacts in which I can further my knowledge and experience. 

 

If you have any advice or could point me in the right direction on possible research projects or must reads for this field I would greatly appreciate it 

• Equity and access (aspirational): Laws, regulation, outreach, and subsidies
• Management of efficiency/conservation and quality (operational): Incentives, reporting, engineering and regulatory policy

From these themes, I can give some ideas on work (experience) and readings (knowledge). 

DA can work inside a water-delivery organization on all of these themes. This experience will be hands on, but perhaps not very progressive, given the inherent caution of water firms. DA can also work for the regulator or an advocacy organization. With the regulator, leverage for change is high, but most of the work involves fights over information and interpreting laws and standards. With an advocacy organization, all topics are ready for radical improvement, but leverage for change is low.

When it comes to developing countries, DA will not be able to get a job as a local unless they have local connections, language skills, passport, etc., so the work is likely to be directed at projects (“we have money for this project but not the one you might want”) or building capacity (“this is how we do it in X, you should too”). In either case, it helps a lot to have operational experience on top of theoretical knowledge and passion (read my paper), thus, see above on work.

The best knowledge will come from practical experience, so I recommend that DA look for internships that offer it. In terms of readings, I could come up with dozens of papers and books, but I’m going to draw from the archive of recent episodes from my Jive Talking podcast, i.e., 

• 12: David Rankin supports innovation for the world
• 27: Jamie Workman pays water savers
• 29: Giel Verbeeck makes water systems sustainable
• 34: Tyler McMahon innovates water in Nepal
• 35: Ed Bourque works on real water issues
• 37: Ralph Pentland has evolved Canadian water policy
• 39: Dale Whittington works on water everywhere
• 45: Tracy Mehan on US water regulation (“airs” on 9 Sep)

Be sure to look at the show notes for links to further reading.

Still want reading? Then I recommend two of my papers on evolving water management in the UK (where meters were more ideological than useful) and the Netherlands (where it took decades and massive public subsidies to build a reliable safe system). 

My one-handed opinion is that you will learn more in the trenches than in the library.

* Note that “sustainable” is superfluous when talking about a well-managed system.

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 [go further and] 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.