January 05, 2004 | Peter

Climate Change and Economics

Without question, the biggest issue facing humanity in this century is how to deal with global climate change. Anyone who does not acknowledge this stark fact is simply in denial.
If the moderate predictions are correct and we see temperature rises of even two or three degrees on average this century, then we face the biggest challenge we have faced since we invented civilisation. Furthermore, this change in the weather will occur as we deal with a whole raft of other problems, including new technologies, population growth, new diseases, diminishing fresh water supplies and declining oil reserves.
Despite general agreement by scientists that SOMETHING really important is happening to the world’s climate, essentially nothing is being done at the moment to deal with it. Why not?
Firstly, there is the problem that out political decision-making processes simply cannot accommodate long-term decision making. Political leaders are always looking ahead to the next election, not the next problem to be faced. Our basic political systems are relics of the 19th century, while climate change is mostly a product of the 20th. We need 21st century political systems to deal with this problem.
Secondly, we cannot ignore the hard fact that most current political leaders think that the problem won’t become obvious until they are dead and gone. They are wrong about this, of course, since the effects are already apparent. But the reality is that the incredible egotism of many politicians makes them think that the world will end when they die. Our systems of politics place enormous emphasis on personality, and the people that thrive in this environment are mostly the least capable of acting selflessly.
So this combination of failed political institutions and personal egotism mitigate against appropriate decision-making on big, long-term problems like climate change. But there is another basic problem, and that is the system of thought known as economics. By this we usually mean classical or neo-classical economics which places the entire focus on the institution of the market, a supposedly rational and neutral mechanism for distributing resources within society (as opposed to, say, Keynesian economics which relies on action by the state). Mostly, when we use the term these days, we mean classical/neo-classical economics.
Economics simply has no way of dealing with a problem like global warming. Economics is concerned with the social relations of production and consumption, and getting the best mix between the two through trade mediated through the price mechanism. It thus makes gross assumptions about human beings, about the material world, and about reality itself.
Let us take one instance of how economic logic and actual material reality do not coincide. Essentially, economic logic is linear in that it sees a certain amount of input as producing an immediate, definite and proportional output. The material world is not necessarily like that, however. In the material world a vast amount of changed input can be soaked up with minimal or no change in apparent output, until suddenly it all changes. Basic states of being can thus alter quickly but with minimal warning.
So, for instance, the earth could soak up all the energy from burning fossil fuel with apparent ill effect, until a boundary is crossed, there is cascading effect, and a new state of equilibrium is suddenly created. The trouble is, this new state may be unsuitable for civilisation or even human life.
The root of this problem is the simplicity of economic models of reality. Essentially they are mechanical, and the natural world is far too complex for such models. This complexity is demonstrated in the famous ‘butterfly effect’ when a cyclone can be generated by a complex set of relationships originating out of one butterfly moving its wings. When we move into the realm of biology, or self-organising systems, this problem of complexity is greatly compounded.
The complexity of biological systems and the ramifications for economics (or more accurately, wealth generation) have been discussed in some of the recent writing on ‘clustering’. According to these analyses, real wealth these days comes out of knowledge and especially the interaction between different sets of knowledge. The complexity of these interrelationships makes analysis almost impossible, so theorists look instead for indicators. For instance, one theorist has argued that the best indicator for optimal clustering is a significant gay population.
So, economists, when they think about global warming at all, think that we will get plenty of warning about climate change, and then presumably certain – but so far unstated – economic factors will change that will deal with the situation to ‘clear the market’ and produce a solution.
It should be clear that the whole conceptual model of change in economics is inadequate in dealing with change in the material world. Unfortunately, this restrictive model of social organisation is completely dominating mainstream discourse, especially when it comes to politics.
In Australia we have seen over the last two decades the national development model, in which the government and other state-based institutions (such as the industrial arbitration courts) play a central role superseded by the so-called economic rationalist ideas which give final authority to markets. To confront out own domestic environmental crisis, including salinity, governments will have to take the prime role. To play a part in global attempts to control climate change our national government will also need to participate.
At least we have a national governing system that we can crank up again after some years of neglect (with the associated popular disillusion). One of the biggest problems facing us is that we do not have a global equivalent to allow real decisions to be made, and to ensure that the costs of dealing with climate change are allocated fairly.
Sooner or later, perhaps even this year, the climate change problem will break through into the public consciousness and become seriously political. When it does, the need for general reform of our political systems and the need to attract real talent into these processes will become starkly obvious.

Posted by Peter at 1:55 pm | Comments (1) |
Filed under: Uncategorized

1 Comment

  1. I really still don’t think evidence for global warming is conculsive. but i am a greenie.
    see http://alphacoward.blog-city.com for the rest of the post

    Comment by alphacoward — January 8, 2004 @ 3:01 pm

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