The progress of humanity has been greatly enhanced by those who, after thoughtful analysis, expressed views that are contrary to popular thought. Persons like Voltaire, Galileo, Socrates, Nietzsche, and the father of both the American and French revolutions, the great Thomas Paine, whose "Rights of Man" and "Age of Reason" would make him the contrarian of all time in my book.

It is in the spirit of these polemicists that I create this blog. It is my intent to challenge popular suppositions. While it will become evident that I am generally a progressive liberal, hopefully I will have the courage to take opposing viewpoints to those of my own comrades when appropriate.

No comments will be deleted based solely on the political , social, economic or religious views you may have. In fact I encourage thoughtful discourse. I will however promptly remove any postings that contain overtly vulgar comments, racial slurs, hate speech of any kind, or multiple postings of "conspiracy theories". Though not required, please post links for references to the point you are trying to make, or at the least, give us an idea of where you found the information that supports your cause or claim.

Tuesday, April 2, 2013

Algorithms and Alchemy: The debate about growth we're not having

I've been following with great interest the feud that has been heating up over the last week between Nobel Prize winning economist Paul Krugman and former Reagan advisor David Stockman. It all began with Stockman's Easter Sunday article in The New York Times. There's no need for me to give a blow by blow description. You can get the general drift of their fight from this Dailykos article:  Not unlike many of the great boxing matches, much of it is 'pay-per-view' behind the Time's paywall (Krugman happens to be a regular columnist and blogger for the paper). If you are like me and are becoming suspicious that this whole thing might be a bit contrived, perhaps we are onto something. There's certainly nothing new here. Using the right algorithms a case can be made to prove both gentlemen correct, or incorrect. Keynesians like Krugman and Neo-classicists like Stockman have been arguing monetary policy, debt, deficits,spending and size of government for decades. The arguments go on ad infinitum, each pointing to their own econometric models, graphs, and models, with the advantage going to one side and then to the other. But neither side can muster a knockout punch. I get the sense they all are getting more desperate and hysterical by the moment.

I think there is an important lesson here. The Keynesians and Neo-classicists are just two sides of the same coin. Real insight into the situation can only be gotten by examining the common outcome promoted by both. Each has their own method of allocating capital, labor, and technology (innovation) in contrasting ways to arrive at the ultimate dogmatic solution on which they both agree, namely GROWTH. But is growth the solution? Or is growth really the root of the problem?  Why is there no public debate about this? Both sides of the capitalist argument have thrown everything they have at the problem and all that has been accomplished is another stock market asset bubble here in the U.S. (as Stockman so aptly describes as being a result of money printing) and a series of severe recessions in Europe (as Krugman describes austerity measures in the Eurozone). We are six years into the biggest global economic collapse in 75 years and nothing is stemming the tide of increased poverty and reduced real wages of the middle and working classes. Not just here, but all across the developed world. With all the cheerleading for the various solutions, blame-gaming, highly contested elections and economic number crunching, governments have for the most part, according to author Chris Hedges, "become unable to respond to the needs of the masses of people". All of which leads me to believe there is something seriously missing in the discussion.

Here is my question, and I assert is the question everyone needs to be asking: "Is sustained growth even possible on a planet with finite resources?" Modern economic models seem to ignore, or at the least minimize, the importance of resources, and in particular, energy resources used as inputs to generate economic growth. The econometric models assume resource inputs to be a given. Economists may allow for temporary shortages and price spikes in their algorithms but often tout some vague"substitution" theory or what they like to refer to as "rational innovation" as being the solution. And any economist who has the courage to ask this important question is quickly marginalized to the fringes. Even Marxian economists, with their emphasis on the labor value function of economy, shy away from attempting to answer with any depth this important query. They just call "profit" surplus labor value and argue for a more equitable way of distributing such value. But when trying to address growth and resource questions Marxists get nervous. I suppose that is better than the incredulous blank stare one gets from capitalists.

Economics is viewed and practiced today as solely a social science. I think this is a serious mistake. It would make better sense to create models dependent on bio-physical science as well. Such a model would include as its inputs real scientific calculation of natural resource inputs (i.e. energy, water, arable land, minerals) and outputs that would not only include goods and services, but waste (CO2, pollutants) as well. If the real costs of these externalities were figured into the equation I doubt that we would be seeing any growth at all. We may be actually seeing a decline. Traditional economic theory has no way to account for these things. One has to go all the way back to the 18th century French Physiocrats and theorists in political economy like David Ricardo and John Stuart Mill to find any meaningful references. The headwinds of resource constraints accompanied by burgeoning populations is a subject economics academics are ill-equipped to deal with, and I think for good reason. Economics is not a hard science at all. It presupposes too many variables and subjects nothing to the scientific method. When you hear an economist say "all other things being equal" prior to hearing his hypothesis you know you are about to be duped.

Let's take the example of energy resources, oil in particular. YES, there is plenty of oil. And, NO, we won't ever run out of it. In the worst case it will COST more. That is about as far as any economist will go. But there is a HUGE problem that the economist avoids.. We've used most of the easy to get oil already. At some point the amount of energy required to get the oil that is left will equal the energy we get out of it. According to Professor Charles A.S. Hall, bio-physicist and author of "Energy and the Wealth of Nations", in 1930 for every barrel of oil invested we got back 100 barrels of oil. By 1970 we only got back 30 barrels, and as of today we're only getting back 10 - 12 barrels. Not only does it get more expensive to drill and produce in monetary terms, but more importantly in strictly energy terms. The most likely scenario is one in which we will still have trillions of barrels in the ground but of it being essentially worthless.  Hall further notes that a similar scenario is playing out with natural gas. The known deposits of easy to get conventional gas are in rapid decline. The 'new gas' is mostly coming from the horizontal drilling method known as 'fracking', and despite the giant maps showing it to be so plentiful, most is coming from tightly congregated sweet spots, that while showing high output at first, decline in production rapidly. So what does this all mean? It means that even if we manage to ignore (to our own peril) the unaccounted for costs of fossil fuels like health problems and climate change, it will be impossible within our current model to ignore the unaccounted for costs of a world economy that has lost its primary energy source. And I don't hold much optimism for the success of those who hold to "substitution" theory, the last line of defense for economists. In 1970 seventy percent of the world's energy use was from fossil fuels. In 2012 that figure hasn't changed. It sure doesn't appear there is much "substitution' going on at all.

And if you think energy is the only endangered resource, think again. Our most precious resource, water, is also in danger. We don't even put a price on it. Quite astounding really. Only a bit more than 3% of the planet's water is drinkable and much of it is becoming polluted. The rest is salt water or brine, not much good to drink, not much good to water crops, and fundamentally useless in industrial processes. We could clean up the polluted water and desalinate the salt and brine water but that would cost a lot of money. Oh, and that would require a massive amount of energy too. Is there a "substitute" for water?

 I hope Krugman and Stockman are having fun practicing their alchemy.

Think I'll stick with the scientists..............................

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