Thursday, July 31, 2008

Illusions of waste – a distraction for the masses

The oft-repeated mantra of the ‘ecological modernist’ is that we are wasteful. They see the rise of disposable cups, packaging, and plastic bags as a sign of that wastefulness. Further, in terms of energy and climate change, they see traffic jams full of cars with only the driver inside, and lights on in buildings with no occupants in the city all night – a society squandering our resources. If only we could stop all this wastefulness and build a utopia.

I will try and persuade you that the opposite is true. We are no more wasteful than we ever have been. In fact I will take it even further, by trying to persuade you that there is no solid principle upon which to even propose a concept of waste. Shall we proceed?

It is probably easier to start with the example of money. Quite regularly I hear people say “don’t waste your money on that.” What do they mean here? If it is something you would like, however silly the reason for that is, and you are willing to sacrifice any other consumption the money would have allowed you, then it cannot be waste. Think about it. Isn’t something wasteful to one person but not another? The relative and opinionated view of waste is highlighted in the caricature below.
“The environmentally conscious Prius driver looks at the large 4WD, with no passengers except the driver, sitting in traffic and thinks “what a waste.” The man behind them both on a motorcycle thinks “what a waste for just one person.” Beside him is a cyclist who looks at them all and thinks “what a waste of petrol when you can ride.” The walker on the footpath looks at the road with the 4WD, Prius, motorcyclist and cyclist and thinks “what a waste when you can just walk.” The quiet and thoughtful introvert looks out the window from the top storey of their house and thinks “what a waste – they’re all going to watch motor-racing anyway.” The neighbour across the street looks from the balcony of their small apartment to the thoughtful introvert in the window and thinks “what a waste – that whole house for one person.” Where does it end!”
See the confusion? Waste is a relative concept. What one person thinks is waste is clearly not to another person. You can imagine the most frugal individual today looks like the most wasteful one of a century ago. But surely you say, something must be waste – what about rubbish, and all that excess packaging? (Excess – compared to what I might say?)

First, we can take a look at rubbish. Isn’t rubbish simply something that is past its useful or valuable life? Is rubbish waste? If we adopt the definition that when an object is past its useful life it is rubbish, and also waste, then everything we have ever, and will ever produce as a society is ultimately waste. Nothing lasts forever, so even our houses, buildings and streets are waste. In fact, if it wasn’t for a short period of usefulness to humans at the time, all humanities great historical feats are waste – the pyramids, the Parthenon, all waste. It’s just that what we see daily as waste are those things produced for very short periods of use. Packaging has a use. The type of packing we see from the supermarket preserves food, enables easier transport and informs people of the contents. But there was plenty of other packaging along the way that we don’t see, which equally served a useful purpose. We just happen to see much of it at the end of its useful/valuable life.

Why then does it appear that there is more waste then ever? Simply because there is more production now than ever in the past. This enables many materials to be cheaper, and used for purposes with less value - but these purposes are generally for some positively-valued use.

This leaves three options:
  1. Believe that waste is a useful concept – to do so you must determine an arbitrary but absolute baseline from which the relative concept of waste is determined. 
  2. Believe waste is a concept but not particularly useful - that it describes a good at the end of its useful life, in which case everything humanity has ever produced is waste, or 
  3. Believe the concept of waste has no underlying foundation and is therefore useless. 
Personally, I am would regard myself as one of the leaders of the third group. I would say the popularity of waste as a concept in environmental circles is, in fact, slowing progress on environmental issues, as it distracts from the core problems of which natural resources we will allow to enter our produciton system, how much of them, and where to but all produced objects at the end of their life.

Thoughts anyone?

Monday, July 28, 2008

Health care - an economist environmentalist perspective.

There are a number of issues I want to publicise on this blog, all of which challenge the economic and social orthodoxy that so rarely provides causal explanations and the ability to make even simple predictions. Today, I want to explain the predicament of public health care with two simple theories, both of which have somehow escaped much focus from mainstream economists.

It is best to start with what one would expect the health care current situation to be, and where the fingers are currently pointed. With the rapid technological advances in medical treatments, and the rapid reduction in price of almost all medical treatments including preventative measures, one would expect a healthier society and lower costs for running the healthcare system. But instead the system is in a funding crisis (as is the case in many countries), and people are seeking medical treatments more than ever. The finger is being pointed from some corners at the bureaucracy, for inefficiently providing services, and from other corners, simply to a shortage of funding. But would improving the efficiency of the system and the funding relieve the current pressures? I suggest not.

It is probably time to introduce the first theory to explain why I say this. It is known as Baumol’s disease, and describes how costs of production rise due to improvements in labour productivity in other sectors of the economy. In his classic example, William Baumol shows how improvements in labour productivity in other sectors of the economy (for example in farming, mining and manufacturing) lead to increased costs for playing a string quartet. Since individuals have a choice of whether to supply labour in the industries with increasing wages due to productivity improvements, or to the string quartet, the salary of the musicians must rise to attract them away from the other industries. If we replace the musicians with nurses, doctors and hospital administrators, we can see that it is our improved productivity in other areas that is causing this rise is health costs (as well as most other services). One might argue that productivity is improving in health professions as well, but a nurse making their rounds still needs as much time as ever, even if they are checking more medical vital signs.

The second theory that helps to explain the situation in health care is a broad interpretation of Jevons paradox. The theory explains that the efficient use of a resource does not diminish its consumption, but in fact increases it. The theory was developed in response to improvements in the efficiency of the coal fired steam engine, but it nevertheless applies to more broad cases. To begin this intuitive explanation one fact must be made clear – almost half of the medical costs a person incurs in their lifetime are incurred in the last thirty days of their life. With a little thought it is clear to see why this is the case. What has happened is that improvements in medical treatments have enabled us to live longer lives, and because of much of the preventative treatments, we die less suddenly then ever, increasing these 'death postponing' medical costs. Because we can diagnose more problems, we can visit doctor more readily, we treat more medical conditions then ever. Thus, it is because of the very efficiency and effectiveness of medical technology that our demand for it has grown, both during our lives, and in our ‘prolonged death’.

This harsh reality escapes almost every economist looking to improve the health case system. If we continue to improve productivity elsewhere in the economy, health costs will rise, and on top of this, their own technological breakthroughs lead to further demand for medical treatment. An analogy that might be more accessible is the idea of the paperless office. We have had wonderful improvements in the efficient provision of paper, but also elsewhere in the economy to actual produce the documents we wish to print. In all, paper use has risen dramatically, and if not for the reduction in real costs of paper (the opposite case to the labour of medical profesionals) the costs would have also sky-rocketed.

There is no easy way to reduce the health care burden. Actually, burden is not the right word, for health care itself supports much of society. Without it, there would be less of us, less of us in a healthy condition, and less production elsewhere in the economy. Looking in this way, those politicians who believe in productivity and growth might actually want to invest more in health care, due to the flow on benefits. For those who think less growth is the way to go because of environmental concerns, be aware that this goal conflicts with that of improved health spending, and improved health and life expectancy of the people.

What a complex world.

Wednesday, July 23, 2008

Is energy different from other resources?

In the face of global environmental challenge in the form of climate change, energy generation has become a target for governments and environmentalists alike. If we are not trying to use less of it, we are trying to generate it from other sources. But I often wonder why energy is treated any differently from any other resource. I also worry that a solution to climate change involves other environmental costs that will offset any improvements made. In fact, what scares me most is that we will find a clean and very cheap energy source – what the environmentalist may prize, I view as catastrophe wating to happen. Let me explain.

Quite simply, I see energy as a resource just like any other physical resource such as iron or timber. The reason is simple, use of these resources reduces labour effort required to produce goods. Also, they need to be combined with other resources to have any practical use. For example, a shovel reduces the labour time required to dig a hole. It could be made from timber, iron, steel, or any material. In the same way, a bobcat reduces the time to dig a hole by combining steel, plastic, rubber, and numerous other materials with oil and labour to produce holes. The energy from oil is just another physical requirement.

This leads to my climate change concern. To use less energy for a given purpose, we need to substitute energy for other resources. For example, a more energy efficient light bulb uses much more material and energy in its manufacture to use less during its useful lifetime. My concern then is that is a quest to be energy efficient, our requirements of other materials, and especially highly processed and polluting materials such as aluminium and mercury will drastically rise. The worry is that some materials we develop on our quest for energy efficiency will cause their own environmental disasters.

So what about the cheap and clean energy of the utopian dream? When we picture energy as just another physical resource we can see the problem clearly – this virtually ‘free’ energy is useless alone. It will require combining with other materials to make the machines and gadgets we desire. Furthermore, what is it we actually do with energy? We don’t build friendships and satisfy our spiritual desires. No, we use it for mining, transport, fishing, farming, and all the industrial processes of the economy.

If we are concerned about the environment, one might wish to become less energy efficient, or to have more expensive energy – both have the same effect. But the problem of technological developments is that they are irreversible. Once we know how to do something, we cannot unknow it. However we are finally learning the way our economy and environment interact. If only this knowledge can be put to good use, rather than as an excuse for further economic development.

Wednesday, July 16, 2008

What does the economy produce? Hunger, humans or happiness?

It occurred to me recently that the economic system does not really produce anything. From our individual perspective it appears that many goods and services are produced... but what then? Adam Smith famously said that 'consumption is the sole end and purpose of all production', so everything we produce is subsequently consumed, leaving us with...?

We might think that this makes no sense. We produce goods to consume them - that is the purpose and the point. But what happens then? We consume goods and services and then we supply our labour to produce more goods and services, which are ultimately consumed and so one and so forth.

The economist would say that we produce utility. That is, some kind of happiness or satisfaction in each of us from the act of consumption. But much research suggests that happiness is determined internally once some basic human needs are met. So if all this production and consumption is not producing happiness, what is it producing?

From a physical perspective, some ecological economists have suggested that all the functions within an economy are interdependent. We think the production as a one-way street, but the consumption of food, housing and entertainment is necessary for the supply of labour, which goes back into production. It could be imagined that there is no real production in the economy. It is simply a system that enables humans to fulfil their basic biological desire to reproduce and support a growing population. We could then say the economy produces people, but that again would be arbitrarily confining the system, since as suggested earlier, people are a functional part of the whole.

Maybe this is a strange way to view the world. A system without purpose that produces nothing. But in fact, Darwin would suggest that is a good way to describe it. That is how he described biological systems - a system based on variation, inheritance and selection, with no forethought or purpose. We are just animals after all.

Anyway, for those out there who like to blame the political, economic or banking system for the world's ills, and think there must be some alternative, relax. There isn't. Many of the world's problems, from poverty and human rights issues, to environmental issues stem not from our institutional systems, but from greater biological evolutionary systems that blindly created humanity in the first place. Any political or economic system will suffer the same fate.

So please relax and enjoy yourself - because happiness comes from within.

Tuesday, July 15, 2008

Amory Lovins - a crackpot with a mo!

The world media is full of optimistic talk of a future hydrogen economy and soft energy paths courtesy of Amory Lovins. Most famously he coined the term 'negawatts' to describes energy savings from energy efficient gizmos. For some reason, otherwise intelligent people have jumped on board the scam train and preached that the best thing we can all do is use energy more efficiently, and there will be not need for more energy generation capacity.

Rather than waste more time, I will bluntly show the absurdity of this claim. I currently eat one banana a day, but could eat them more efficiently, resulting in me eating just one per week! Each week I am now producing 6 negabananas! Surely there is no reason to clear the forest for banana planations since we can all consume them more efficiently! Lovins however takes the whole 'negascam' thing even further. He says that consumers should be paid to produce negawatts. Seriously, I produce an thousands of negawatts - I could plug in flood lights into all the electricity sockets in my home, using thousands of real megawatts (hours that is) but I don't. Therefore, I am instead producing thousand of negawatts. Where is me cheque?

The reality is our global economic system requires energy, and for the system to grow, we either need more people, or more energy available per person. It is a simple as that. Our choices are to continue using more energy each year and maintain growth, or use less energy and have negative growth.

Monday, July 14, 2008

My list of problems with economics

1. That most theories are base on some equilibrium position. Ceteris paribus, the world should converge to this point. However, this clearly has not happened, and is not likely to in the future. So what value are these equilibrium models?

Wouldn’t a better way be to explain the processes that cause constant changes? Rather than observing given situations, would it be better to know the processes that create the situations from previous ones? This is where evolutionary explanations come into play. The theory of evolution describes how such causal processes behave. An understanding of these processes may bring a whole new foundation to economics – where rather than focus on determining absolute outcomes, we focus on determining absolute processes, which, when given current starting points, will determine future paths.

2. Macro economics for the most part does not know what it is measuring, and therefore, cannot be much use in explaining our world. What are real incomes? What is the ‘price level’, when the type of goods in the economy continually change? If there is a price level, what is it relative to? Why is unemployment a bad thing when government benefits are provided? Do we value our time so poorly, and money so highly? Furthermore, there is a distinct lack of causal explanation for many of the phenomena observed. One observation of and abstract construct correlates with another observation of an abstract construct. Neither of which are known to the agents who make the decisions.

3. The great illusion of technology. Economists use the term ‘technology’ to explain everything the cannot explain. In the Solow growth model, technology is simply a residual term that captures everything that is not labour and capital. Can we really be so ignorant about the process of economic growth? Also, environmentalist have got the whole process backwards with regard to technological improvements in resource efficiency. Historically we know that such improvements cause increased resource consumption – how can they all of sudden start doing the opposite?

I’m sure there are many more, but that should be enough for today.

Sunday, July 13, 2008

Sustainability is not about small actions – it is about human nature

Imagine you work as a reporter for a newspaper. due to your extreme environmental concern you decide that if you didn’t write your articles every day, then the paper they are printed on would be saved. As a compromise, you make sure to halve the length of each article. Further, if just one reporter from each newspaper around the world would take such actions, you imagine that many thousands of tonnes of paper would be saved.

Such a scenario describes the thinking of most conservationists, but it is fundamentally flawed. For starters, the newspaper must fill each page with something, so it may very well choose to fill the space with advertising or some other extended articles. Also, the publisher will seek to expand circulation, which itself requires more paper. Your actions have achieved nothing.

This is symbolic of the world we live. Small actions get absorbed by the economic machine, resulting in at best a substitution of resources and environmental problems. Even very large commitments will be absorbed by other global players.

The machine is not the ‘economic system’ the banking system or any other human construct. It is humanity. We are animals with inbuilt desire to reproduce. We seek out ranking above others to increase our reproductive chances, and we seek innovative ways of increasing the productivity of our labour time. To make any real environmental improvement means changing humanity. Or we simply wait till our rapid species explosion is brought into balance by our environment, and start all over again. It is not pretty, but that is sustainable. Repeated waves of human population expansion, fuelled by genetic desire for reproduction and rank.

Some have argued that we can create cultural forces that override these genetic desires, such that seeking rank and productive innovation are frowned upon. This may be the case. The luddites live in a similar fashion. But it takes only one ‘bad egg’ to come to power to stimulate these desires once again.

This is my thought of the day

Vegetarianism and the environment – a different angle

“It takes soo much less land to produce a calorie of energy from vegetables than from meat. If only we all ate less meat we could free up so much land from farming.”

This type of message is heard quite often, especially around my suburb, which is renowned form its high concentration of hippies. But on what basis are such claims made?

There is no debate that less land is required for a vegetarian diet than an omnivorous one. The debate centres on whether widely adopting vegetarianism is likely to result in an improved environment.

Let us meander through a thought experiment. Imagine the world today, and the present diet of the people, and then imagine that in one day 95% of people decide to become vegetarian. Meat industries of the world collapse while grain and vegetable farming expands rapidly. At this point the world is fed on the new diet, and some land previously used for grazing is now vacant. This is the utopia envisioned in the quote above, but what happens next?

The world does not stand still, that is for sure. There are many flow-on effects. The typical diet will now be cheaper, allowing money to be spent elsewhere. Not only will this consumption have environmental impacts of its own, but the increased level of wealth will allow a population increase. Such a rise in population will result from increased life expectancy afforded by increased wealth. More people will also require more resources. The likelihood of such effects offsetting the reduction in land used for meat production on the net environmental condition of the globe is uncertain.

What is certain is that such a narrow justification for individual actions to reduce environmental pressure is misleading, and can often suggest the opposite result from the true eventuality.

Friday, July 11, 2008

Myths of demand side management

Some of you may have noticed businesses offering to install new efficiency light bulbs in your house for free. One example is A lovely lady asked me at the local shopping centre lately whether I had heard about such opportunities. I had not. I took the brochure and continued my enquiries online. It seems that to be able to offer such amazing deals to residents, the company is actually producing greenhouse gas abatement certificates through these measures which they sell to other business to offset their own emissions. Such a system is based on principles of demand side management. But does this system have sound foundations?

A short story may highlight some flaws of this program. Joe is on a budget, and is known as the guy who is careful not to waste anything. He always turns the lights out when not in a room, and always switches off appliances. The offer of free efficient lighting seems irresistible. He arranges to have his all his light bulbs replaced by Envirocare. Now, that lighting costs him only one fifth of the price it used to, he leaves a light on out the front when he goes out and is much less concerned about turning lights around them home. Since he is now saving so much on electricity, he buys a bigger television, which he leaves on most of the day, and small bar fridge to make space for his beer. A year after the new light bulbs Joe’s electricity consumption is twenty percent higher than before. Where is the energy saving for which supports these abatement certificates?

The short answer is there is no energy saving in this story. If not for the reduction in electricity costs Joe would not have been able to expand his consumption to the new television and bar fridge. More precisely, there is a direct causal link from the efficient lighting and the increased electricity consumption. In this story, greenhouse gas abatement certificates have been created from nothing!

Demand side management is fundamentally flawed. It relies on the assumption that demand for electricity will remain fixed even when prices change. This assumption is false. When the price of lighting is reduced, demand for it will rise – Joe’s did. Also, as incomes rise demand for energy rises. Neither of these issues are considered relevant by demand side advocates, yet there is growing evidence that it is just as effective as doing nothing.

So where does this leave us? Is doing nothing an option? If doing nothing is better than doing something why can’t that be a conscious choice?

Personally, the I feel that clear relief is coming. Remaining reserves of oil and coal are depleting, and in due course, the rising costs of these energy sources will result in reductions in energy consumption. But it won’t be a pleasant and productive period. It will result in radical economic slowdown – there is simply no alternative.