Climate chaos will halve our wealth

I’ve been thinking of the costs of “staying in place” (in terms of consumption) while CC damages arrive since I read 2052 a few years ago (my review).

It works like this: CC means that free and useful ecosystem services (e.g., cleaning water, regulating temperatures) are turning into expensive and harmful ecosystem attacks (e.g., storms, floods, heat waves). The result is that (a) we are poorer for lack of what we used to get for free and (b) poorer still because we need to divert production aimed at consumption into production aimed at defense and recovery, a double-whammy.

So we need to run, faster and faster, only to stay in place.

This recent article from The Economist estimates that “the costs of climate change [to housing over the next 25 years]… may amount to almost a tenth of the value of the housing… or roughly $25trn.” The costs to agriculture, infrastructure, industry, goods and services, etc. should be added on top of that $25 trillion figure.

Fun facts: World GDP is now around $100 trillion. In 2014, scholars estimated that ecosystem services were worth $125 trillion per year based on 2007 data, and that the value those ecosystem services has already fallen by around $15 trillion. (A 2017 estimate gives $155 trillion, but note that the value per unit of ecosystem is rising with scarcity, i.e., as physically damaged ecosystems go “out of service.”)

So, at some point in the near future (I’d say next 10 years), we will be receiving a “net negative” flow of ecosystem services, which human produced GDP will not be able to replace, such that we are not just poorer (our benefits from GDP are smaller) but radically poorer.

Say that we gain net benefits from GDP and ecosystem services of $100T + $185T* or $285T now. If GDP grows by 3% per year and ecosystem services go to zero (remember they will be going negative) in 10 years, then our net benefits will be $134T + $0T, or $134T, a fall of more than 50 percent.

How will that go? Terribly, I am pretty sure. Here’s what TE says about the impact on property:

The impending bill is so huge, in fact, that it will have grim implications not just for personal prosperity, but also for the financial system. Property is the world’s most important asset class, accounting for an estimated two-thirds of global wealth. Homes are at the heart of many of the world’s most important financial markets, with mortgages serving as collateral in money markets and shoring up the balance-sheets of banks. If the size of the risk suddenly sinks in, and borrowers and lenders alike realise the collateral underpinning so many transactions is not worth as much as they thought, a wave of re-pricing will reverberate through financial markets. Government finances, too, will be affected, as homeowners clamour for expensive bail-outs. Climate change, in short, could prompt the next global property crash.

…and that’s just property.

I have been saying for quite some time now (since 2021, and in this paper) that CC is going to “shrink the pie” of economic production, i.e., reversing the positive trend that we’ve enjoyed since the beginning of the Industrial Revolution (200 years, to be conservative).

Consider the brutality of our fights right now, in a world with a growing pie. Now consider how those fights will worsen as the pie shrinks.

Shit’s gonna get ugly.

*The 2017 article estimates a 1.85:1.00 ratio of ecosystem services to GDP.

Addendum (18 Apr): This paper (via AH) estimates that global income (~GDP) will drop by 19% between 2024 and 2050 due to “baked in” CC (i.e., no matter what we do). That’s roughly  $19 trillion, and it’s only a “downpayment” on likely further decreases as mitigation continues to fail.

Are you logos- or mythos-oriented?

The terms “mythos” and “logos” are used to describe the transition in ancient Greek thought from the stories of gods, goddesses, and heroes (mythos) to the gradual development of rational philosophy and logic (logos). Source

Most of us turn to one or the other of these two perspectives, depending on circumstances, but most of us tend to favour one over the other.

I am logos-oriented. I am not religious, barely patriotic, and skeptical of policies that rely on good will to succeed. I tend to think that people act rationally, in the sense that they seek goals, that incentives can change those goals, and that they will respond in a fairly predictable way.

OTOH, I know there are many instances where people “go nuts” — sometimes for noble causes (to help a stranger) and sometimes to support strange beliefs (to fight an imagined foe).

So I need to be sensitive to the type of person or situation that I am in.

In most interactions with most people, I think it’s kinda normal to see the two different sides of the same person and we can get along just fine.

But some interactions can be troubling, such as when — for example — a Christian tells me that (a) God made the Earth 4500 years ago (their mythos against my logos) or (b) that Trump is a good president — despite being a terrible human — because he sells Bibles (their logos against my mythos). In those cases, I prefer to “agree to disagree” because it’s not worth trying to engage with such a different perspective, let alone get them to change it — since they may think that I am the one who needs change saving.

But how often can that happen, that you run into someone so different?

In the academic world, it’s a bit too common for my taste because academics can easily go for years (decades!) without facing the consequences of their beliefs, either in the people they interact with (peers agree; students better agree), which means that these academics can be more radical in their thoughts and less tolerant of those who do not hold them.

In this post, I discussed how academics in STEM and the humanities (BSc and BA, respectively) are fighting for control or power in universities. Those fights* are much worse due to their inexperience in dealing with “mixed” people in the real world, which is not just bad for their students but also for society, since the academics will not “give way” to the other side.

My bottom line is that you should “know thyself” but also know that “thy” has no monopoly on truth.

*An old joke: “Why are academic fights so brutal? Because the stakes are so small.”

Gimme somethin’ mister!

How can we reconcile voluntary, “win-win” market transactions with the popular notion of “giving back” ?*

Consider how sellers have traditionally marketed to you: the street vendor who tosses in an extra “free” orange; the points (or stamps) you get for spending money with X; the “complementary” peanuts or bottled water you get while traveling; “new improved” products, now with “20% free” — and so on.

Every one of these examples raises the cost of what you DO pay for, but most people seem to think they are actually getting something for free.

The same can be said about the rich people, companies and nations who “give back” to various charities. They wouldn’t need to give back if they hadn’t taken too much in the first place — via tax dodges, harmful competition** and colonialism/mercantilism, respectively.

The bottom line? You ain’t get sump’m fer nuthin.

* This post was partially inspired by Chris Rock, who complains in his latest special about “everybody’s talking bullshit… companies say ‘we give back… we give back… we don’t even like the money!'” So true (the BS part).

** My definition of “harmful” competition is much narrower than that of most people — i.e., breaking laws, externalizing negative costs, abuse of market power, etc. I am not too worried about price gouging, excess profits, etc. that are the reward for bearing risk.

“Exploiting” workers

My students are quick to call a job “exploitative,” and I wrote the following to frame my thoughts on those jobs and to push them to be more careful about calling too many jobs exploitative.

Workers are exploited when… 

  • They cannot chose where they work.
  • They are screwed because agreed terms are not delivered (wages, housing, hours, etc.)
  • Their working conditions are worse than agreed.

Workers are NOT exploited when… 

  • They work many hours, with bad conditions, for poor wages.
  • They can quit and go work elsewhere
  • They cannot pay for a decent standard of living.

I make these distinctions because there’s a difference between exploitation and being poor. There are MANY poor people in the world, which is why many of them are “economic refugees” to richer countries. But shit luck (those of us in the “lucky sperm club” were born with the right papers) is not the same as getting exploited.  I’ve traveled in many countries, and I appreciate our common humanity, but I am also aware of the really big differences between rich and poor countries.

That’s why I left the US (as an economic — but also social — migrant) to live in the Netherlands.  

Your thoughts? 

Grades and learning

Schools tend to go to one extreme or another when it comes to grades: they are either confidential or posted openly.

The reasons for confidential tend to involve self esteem, privacy, peer pressure and bullying. The idea is that students will be mean to each other if they know the grades of others.

This idea is a bit flawed — students can be mean in many ways, grades are feedback on work rather than evaluations of personal character, etc. — but you can see its parallel in discussions of pay at work.

The alternative of open grades is popular with those who want to show the product of potential, habits and behaviour — and how sometimes inputs do not lead to outputs. Sure, So-and-so (the model student) got an A, but what about S0-and-no (the rebel), who also got an A? Going further, open grades help students calibrate their own performance; they help groups of students compete with each other (I’ve published on this); and they force teachers to give clear objective feedback to students who will compare their work.

Learning is a process, and grades are signals of whether than process is going well. Although I’d prefer to post ALL my grades openly, I actually fall somewhere in between — I give open grades on some assignments (along side openly penalising failures to follow guidelines), but I give confidential grades on others. That’s just how things work out.

But my one-handed conclusion is that individual grades only make sense when you can compare yourself to the group. That’s how you know that your B+ is amazing (top grade on the exam!) or a disaster (everyone else got an A- or above).

We learn by comparison, so don’t ignore its potential.

How does an entrepreneur set prices?

Traditional (neo-classical) economic theory has robust models of price-setting in two extremes. In a perfect market, identical firms sell identical goods at the same price, each firm covering its marginal costs, but no firm making any profit.

But where do normal firms and entrepreneurs set their prices, based on imperfect information regarding their competition, the potential clients, and the “unique” elements of their goods/services?

Here’s a picture:

My one-handed conclusion is that economists are very sure about a very rare set of market circumstances and very unsure (or they should be!) about 99% of market participants.

Alexei Navalny, RIP

A hero under all circumstances.

We do not have many civic heroes these days — the people who fight with words rather than weapons to preserve domestic quality of life.

Three of my heroes, Clair Patterson, Jane Jacobs, and Rachel Carson, were civic heroes — they sacrificed a lot to help us all.

Another was Alexei Navalny, who was willing to die to help his fellow Russians.

Last week, Putin murdered him.

Putin didn’t murder him directly — just as MBS didn’t murder Jamal Khashoggi with his own hands — but Putin was 100 percent responsible.

I don’t think I was ever a fan of Putin, but he’s certainly turned from bad to worse since I began criticising him in 2005, but this 2009 post is better. I am not sure I would have been so brave if I was living in Russia. Navalny was beyond brave — not just criticising Putin to his face over the years, but returning to Russia to do so after Putin’s thugs failed to kill him with poison in 2o21. Navalny said: “I am not afraid of Vladimir the Poisoner of Underpants.”

That’s a hero, hands down.

I recommend these articles (“Why Russia Killed Navalny” and “The reckless heroism of Alexei Navalny“) to learn more about a leader the Russians needed but may not have deserved.

I look forward even more to Putin’s fall from power.

Who do you work for?

Economists assume that people work for themselves first, i.e., accepting payment (extrinsic motivation) to do something they would not do if they were not paid.

But that “model” ignores the role of intrinsic motivation (we do what we like) which plays a role — large or small — in determining where we work, but also how much we are willing to accept to do the work (more intrinsic motivation on offer means reduces the need for extrinsic motivation).

So it’s complicated.

Now get into the common problem of outsiders assuming you are there for intrinsic reasons when you are there for other reasons. For example:

  • You work at a non-profit, but only because of the salary (extrinsic).
  • You teach at a university but only because you want to be left alone to do research (different intrinsic reasons).
  • You say you care about the public interest but your company screws the public (extrinsic displaces intrinsic).

My one-handed conclusion is that you should not take someone’s motivational claim at face value. Better to watch to see how their behavior (revealed preference) aligns or clashes with their professed goals (stated preference).

Academics and freedom of speech

The First Amendment of the US constitution reads:

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

The purpose of a constitution (ably explained in one of my favorite books) is  to protect citizens from the arbitrary exercise of power. The First Amendment thus protects (among other topics listed above) the right of citizens to speak (or write) freely.

I am a free-speech absolutist, in the sense of saying whatever you want, on any topic. I agree with the common exceptions to this freedom, except when it comes to obscenity (there, I am with Carlin).

America’s constitutional rights stop (in theory) at its borders, and governments elsewhere regulate the speech in different ways. In Germany, you cannot say many things (Nazi stuff is a famous example, as this American recently found out). In Russia, you cannot call war, “war.” In China, you cannot compare Xi to his look-alike.

On university campuses, freedom of speech is subject to different rules, since staff and students are “members of a community.” Those freedoms have been in the news recently, and I want to give my opinion as to why it’s news and how to fix the problem.

Hamas attacked from Gaza on 7 Oct 2022, killing over 1,000 Israelis (2/3rds of them civilians) in an unprecedented act of terrorism.

Side note: I am totally aware of the tension between Israel’s claims of progressive democracy and its treatment of the Palestinians (I am a “two-state solution” kinda guy), but I do not condone terrorism. America (with its religious nuts supporting the settlers), the Arab world (with its hypocrisies), and the Palestinian Authority (with its massive corruption) have really screwed over the Palestinian people, but that’s no excuse for terrorism.

Anyway, the reason we’re here is to talk about freedom of speech on universities, and the example that got everyone’s attention was the 7 October statement by the Harvard Undergraduate Palestine Solidarity Committee, which held “the Israeli regime entirely responsible for all unfolding violence.” Thirty-three student groups at Harvard co-signed that statement. Remember that this was before Israel began its retributions and invasion of Gaza, which has killed tens of thousands of civilians.

So the context is that Harvard’s administration tolerated THAT speech, in contrast to a lot of OTHER speech that Harvard has NOT tolerated. (FIRE may be biased, but facts are facts.) And Harvard is not alone.

So we’re talking about hypocrisy — your speech is bad, my speech is good — rather than anything close to a level playing field in how elite (private) universities handle topics that are favored by the left/hated by the right.

Related: This article points out that politicians — unable to regulate speech at private universities — are attacking speech at public universities, which they should not do. Elite media, such as the New York Times, are also suffering from hypocrisy, in terms of whose opinions are allowed and — worse — in terms of their news reporting. Read “When the New York Times lost its way.”

So, what “we” (Americans, but also citizens in the free world) risk here is a decay in our right to free speech, as various authorities “protect” us from “harmful” speech. That path, as Benjamin Franklin warned in 1722 (!), will deliver neither liberty nor safety.*

So, to recap: One side killed a bunch of people on the other side. Students spoke in favor of the killers, without condemnation from campus administrators who have shut down speech from the other side. I disagree with that history of censorship, since all sides should be able to speak.

So how did we get “here”? How did US academics become tolerant of one kind of speech but not another?

Whelp — it’s time to blame the mathematicians. No, the economists. No,  it’s the politicians (again) — as in the university politicians, or administrators (super insightful read).

Let me spell it out…

There’s been a huge interest in pushing students to study STEM subjects (Science, Technology, Engineering and Math) over the past decade or so, often motivated by economic analyses that show STEM graduates getting more jobs at higher pay than graduates from other majors — especially the humanities (history, philosophy, cultural studies, languages, etc.)

IMO, the statistics are twice flawed. First, as every economist (should) know, the purpose of life is not about maximizing earnings, but happiness (“utils”), which can come from the things money buys but also what you do, who you work and socialize with, where you live, and so on. Money is very important for poor people, but college graduates in rich countries earn more than non-college graduates and are WAY better off than most people in poorer countries. Second, initial earnings do not always correlate with lifetime earnings. Liberal arts students (I teach at a lib arts college) do quite well in later years, for example.

But administrators are not that imaginative, and they — like most bureaucrats — can over-react in counterproductive (high-modernist) ways, as James C. Scott pointed out — so they started to favor STEM majors over other majors — and especially the “poor” humanities. Professors in the humanities decided that their best option was not to double down on what they were good at (building great intellects) but to engage in campus politics, i.e., to claim that they represented underprivileged groups, that they would make amends for colonialism, that they could fix racism, that they — and only they — could make the administrators look good to a public that worried about inequality, injustice, and… a host of other social ills — a series of steps described in that insightful read mentioned above.

Don’t get me wrong. I am not a fan of racism, inequality, and all that, but it’s not like these problems are easy to fix or new (“the poor you will always have among you“). I’ve traveled in 100+ countries, and even quick solutions take more than a century to work.

So now we have administrators backing false prophets (not all professors of humanities, but enough of them) presenting over-simplified theories that cannot survive contact with reality (go Marx!) to idealistic students who live in post-modern bubbles where parents/loans pay the rent. I really love my students, and the passion they bring to many topics, but I also remind them (time and again) that I, as a professor, am not qualified to tell them about the real world that they will enter into, after 16+ years of schooling — a real world where nobody cares about your positionality, where nobody cares about your grades, a world where “diversity” means the working poor, the migrants, the less-educated — and especially the people whose politics they don’t just detest, but don’t understand. In that real world, “transdisciplinarity” means you get safe, tasty food made from ingredients coming from multiple producers; it means that your house doesn’t fall down; it means that there is a medical system that keeps you alive for twice as long as your (great-) grandparents. In the real world, nobody gives a shit about your major. In the real world you are a person, not a major, and what matters is how well you work with others.

So don’t pretend that your speech is more important than theirs.

The bottom line is that the failure to support real freedom of speech on campus — and real discussions about real human issues — boils down to another version of academics putting their theories ahead of reality, which will ruin us all.

But don’t take my word for it. Listen to a mathematician who grew up in the USSR before migrating to teach in the US:

“I grew up in the Soviet Union, where people had to affirm their fealty to ideals, and the leaders embodying those ideals, on a daily basis,” he told me. “As years went by, I observed the remarkable ease with which passionate communists turned first into passionate pro-Western liberals and then into passionate nationalists. This lived experience and also common sense convince me that only true conformists excel in this game.


“The main responsibility of every Soviet citizen was to facilitate the arrival of communism, where people would contribute to the society according to their abilities and receive from the society according to their needs—has there ever been a nobler-sounding goal? And yet historians cannot agree on an estimate of how many millions of people were starved to death, tortured to death, or worked to death, all in the name of that goal.”

Speak freely, everyone on everything, if you want to live together and overcome the dangers that threaten all of us.

*I am not quoting Franklin’s 1755 statement (“Those who would give up essential Liberty, to purchase a little temporary Safety, deserve neither Liberty nor Safety”), which was about paying taxes to fund defense (!) but this statement from 33 years earlier:

In those wretched countries where a man cannot call his tongue his own, he can scarce call anything his own. Whoever would overthrow the liberty of a nation must begin by subduing the freeness of speech … Without freedom of thought there can be no such thing as wisdom, and no such thing as public liberty without freedom of speech, which is the right of every man …

Addenda (14 Jan): Substack could not decide between free speech and “community,” so now  people are unhappy.  Read this brutal takedown of dishonest universities.

Addendum (25 Jan): Good discussion on “the freedom to speak your mind” with the president of Wesleyan.


So maybe not kill ALL the lawyers?

I’m not typically a fan of lawyers, mostly due to experiences of (a) immoral behavior in pursuit of winning at all costs and/or (b) writing laws that increase demand for lawyers without increasing quality of life.

Now, let’s look to a few good aspects of lawyering that I have recently had the (mis)fortune — due to legal disputes — to be reminded about:

Lawyers are good for…

  • Giving you advice and an alternative perspective.
  • Supporting you in a dispute (=someone on your team)
  • Understanding legal details, processes and norms.
  • Working for you when you’re busy elsewhere.

So, let’s not kill all the lawyers — not just yet 😉

ps: In countries with populations from multiple cultures, it’s useful to have rules — and the lawyers to enforce them — to reduce friction (thus, spending a bit on lawyers to save a lot elsewhere) and help everyone get along. In more homogenous cultures, customs may be more important than rules in terms of delivering less friction at lower cost. But those cultures can run into serious issues if, for example, they start to diversify, cultural norms are no longer shared, and there is no tradition of using rules (and lawyers!) to work out disputes. Tricky.