Ch. 1 Visions of the Future

1. Ch. 1 Visions of the Future

2. Introduction • The Self Extinction Premise • Do societies germinate the seeds of their own destruction? Examples: • Rome • Texas Rangers baseball • Gloom & Doom: Malthus (1798) believed population grows geometrically, but food supply only grows arithmetically. • Some Historic Examples: • Mayans of Central America: collapsed in 8th and 9th centuries A.D. • Easter Island: 2,000 miles west of Chile; impressive statues; society collapsed

3. Introduction (cont.) • Malthus was wrong but others argue that his prediction may yet come true • Many potential problems exist: deforestation, plant and animal extinction, ozone depletion. • But are some of these claims exaggerated? • Will mankind adapt? • Is necessity the mother of invention?

4. Future Environmental Challenges • Climate Change • Committee on the Science of Climate Change (2001) says that surface temperature has risen 1 degree Fahrenheit in past century & most warming over last 50 yrs. is due to humans • Potential impacts??? • Water Accessibility • United Nations says about 40% of world faces moderate to high water stress. • examples: Colorado River in Southwestern U.S., Rio Grande in Texas, Yellow River in China

5. Meeting the Challenges • Global problems will require global solutions • Formerly, nations could solve their own environmental problems. • Now international cooperation is needed for a host of problems. • International agreements are difficult to achieve • E.g. fishing, farming

6. How will Societies Respond? • Feedback loops • Positive - secondary effects reinforce basic trend • Examples: methane gas may warm atmosphere, which warms permafrost which releases more methane gas; subprime credit market in August 2007 • Negative – self limiting • Examples: Gaia (Greek for Mother Earth) hypothesis:

7. The Role of Economics and The Use of Models • Models: simplified abstractions of reality. It is impossible to describe every detail. • Parsimony: select the most impt. features; omit the relatively unimportant features. • Everyone uses models: engineers, repairers, dressmakers, architects, mapmakers. • Purposes of a model: • 1) Explain 2) Predict • Two possible competing models of future: • 1) Basic pessimist 2) Basic optimist

8. Is This a Good Model of the U.S.?

9. Is This a Good Model of the U.S.? • It does not show how to find: • McDonald’s • libraries • bowling alleys • baseball stadiums • It does show basic physical relation of each state to each other • Conclusion: Different models are needed for different purposes. Models are never “real.”

10. The Basic Pessimist Model • Limits to Growth, D.H. Meadows et al. (1972); Beyond The Limits (1992) • argued that humanity would soon exhaust natural resources & die in misery of polluted environment • large computer model based on feedback loops • Conclusions of model: • 1) in <100 years society will run out of resources; precipitous collapse of economic system; massive unemployment, decreased food production, death rate increases, population decreases

11. The Basic Pessimist Model (cont.) • Conclusions of model: • no smooth transition; overshoot and collapse • 2) Partial solutions will not work; even if resource base is doubled, collapse will still occur due to pollution • 3) overshoot and collapse can be avoided only if we limit population and pollution and stop economic growth.

12. Dangers of Prognostication • Many “experts” have made bad predictions • U.S. Geological Survey in 1920 reported that only 7 billion barrels of petroleum remained to be recovered and would be exhausted by 1934. But by 1934, an additional 12 billion barrels were discovered. • Paul Ehrlich (“Population Bomb”) bet Julian Simon (economist) in 1980 that five resource prices (total value of $1,000)would increase by 1990, but value fell to <$500!!! (See Example 9.2, “The Bet”)

13. The Nature of the Basic Pessimistic Model • dominant characteristic: exponential growth with fixed limits on resources • Suppose current reserves of a resource are 100 times current annual use • if consumption is not growing, resource will last 100 years • if consumption is growing at 2% per year, reserves will be exhausted in 55 years • if consumption is growing at 10% per year, reserves will be exhausted in only 24 years

14. Exponential Growth • A + A(1+g)1 + A(1+g)2 +...+ A(1+g)n = 100A • A[(1-(1+g)n+1)/(1-(1+g))]= 100A (see proof on next page) • (1-(1+g)n+1) = -100g • (1+g)n+1 = 1 + 100g • (n+1)ln(1+g) = ln (1 + 100g) • n = ln (1 + 100g)/ ln(1+g) - 1 • e.g. let g = 2%, then # of yrs until exhaustion : • n = ln (1 +2)/ln(1.02) -1 = 54.48 years • e.g. if g = 10%, n = 24 years

15. Exponential Growth • (1) Y = A + Ac1 + Ac2 +...+ Acn • multiply first equation by c • (2) cY = Ac + Ac2 + Ac3 +...+ Acn+1 • subtract (2) from (1) • Y - cY = A - Acn+1 • Y(1-c) = A(1 - cn+1) • Y = A(1 - cn+1)/(1-c) • now let c = 1+g in the earlier problem • Y = A(1-(1+g)n+1)/(1-(1+g))=A(1-(1+g)n+1)/-g)

16. The Basic Optimist Model • Herman Kahn et al. (1976): The Next 200 Years: A Scenario for America and the World • Basic conclusion: 200 years from now humans will be more numerous, rich, and in control of the forces of nature. • Tampering with the growth process will consign the poorest countries to life of poverty. • Nature of the Model: “Necessity is the mother of invention” • new technologies will make resources more available • food and energy will become more abundant

17. The Basic Optimist Model • Julian Simon, the late well known population economist, The Ultimate Resource (1981) • As the population has increased, standards of living have increased. • As incomes have increased, the environment has become cleaner. • A modified version of this hypothesis is known as the Environmental Kuznets Curve. As per capita income increases, pollution first increases, reaches a maximum, than declines. It has an inverted U-shape. We will discuss this more later.

18. Ecological Economics vs. Environmental Economics • Some similarities, some differences • Environmental economics: based on standard paradigm of neoclassical economics which emphasizes maximizing human welfare and using economic incentives to modify destructive human behavior • Ecological economics: uses a variety of methods, including neoclassical economics

19. The Road Ahead • natural sciences relegate humans to trivial role • economic models recognize that humans react to changes in the costs and benefits of using natural resources • direct solutions often exacerbate the problem • simple solutions of the government often fail for predictable reasons • e.g. rent controls reduce the supply of housing • e.g. natural gas price controls reduce supply • Bottom line: CORRECT government solutions are needed

20. The Issues • 1) Are resources finite? Is growth exponential? If limits do exist, have they been measured correctly? • 2) How does the economic system respond to scarcities? Does it involve mainly positive feedback loops? Would it intensify or ameliorate any initial scarcities? • 3) What is role of political system? Is gov’t intervention benign or exacerbating?

21. The Issues (cont.) • 4) Can the economic and political situations respond to uncertainty in reasonable ways? • 5) How do we alleviate current poverty without harming future generations? Is sustainable development possible? Can short-term and long-term goals be harmonized?

22. The End