Ch. 1 Visions of the FutureCh. 1 Visions of the Future

IntroductionIntroduction The Self Extinction PremiseThe Self Extinction Premise

– Do societies germinate the seeds of their own destruction? Do societies germinate the seeds of their own destruction? Examples:Examples:» RomeRome» Texas Rangers baseballTexas Rangers baseball

– Gloom & Doom: Malthus (1798) believed population grows Gloom & Doom: Malthus (1798) believed population grows geometrically, but food supply only grows arithmetically.geometrically, but food supply only grows arithmetically.

– Some Historic Examples:Some Historic Examples:» Mayans of Central America: collapsed in 8Mayans of Central America: collapsed in 8thth and 9 and 9thth centuries centuries

A.D. A.D. » Easter Island: 2,000 miles west of Chile; impressive statues; Easter Island: 2,000 miles west of Chile; impressive statues;

society collapsedsociety collapsed

Introduction (cont.)Introduction (cont.)

– Malthus was wrong but others argue that his Malthus was wrong but others argue that his prediction may yet come true prediction may yet come true

– Many potential problems exist: deforestation, Many potential problems exist: deforestation, plant and animal extinction, ozone depletion.plant and animal extinction, ozone depletion.

– But are some of these claims exaggerated?But are some of these claims exaggerated?

– Will mankind adapt?Will mankind adapt?

»Is necessity the mother of invention?Is necessity the mother of invention?

Future Environmental ChallengesFuture Environmental Challenges– Climate Change Climate Change

» Committee on the Science of Climate Change (2001) says that Committee on the Science of Climate Change (2001) says that surface temperature has risen 1 degree Fahrenheit in past surface temperature has risen 1 degree Fahrenheit in past century & most warming over last 50 yrs. is due to humanscentury & most warming over last 50 yrs. is due to humans

» Potential impacts???Potential impacts???

– Water AccessibilityWater Accessibility

» United Nations says about 40% of world faces moderate to United Nations says about 40% of world faces moderate to high water stress.high water stress.

» examples: Colorado River in Southwestern U.S., Rio Grande examples: Colorado River in Southwestern U.S., Rio Grande in Texas, Yellow River in Chinain Texas, Yellow River in China

Meeting the ChallengesMeeting the Challenges

– Global problems will require global solutions Global problems will require global solutions

»Formerly, nations could solve their own Formerly, nations could solve their own environmental problems.environmental problems.

»Now international cooperation is needed for Now international cooperation is needed for a host of problems.a host of problems.

» International agreements are difficult to International agreements are difficult to achieveachieve

E.g. fishing, farmingE.g. fishing, farming

How will Societies Respond?How will Societies Respond?– Feedback loops Feedback loops

» Positive - secondary effects reinforce basic trendPositive - secondary effects reinforce basic trend Examples: methane gas may warm atmosphere, Examples: methane gas may warm atmosphere,

which warms permafrost which releases more which warms permafrost which releases more methane gas; subprime credit market in August 2007methane gas; subprime credit market in August 2007

» Negative – self limitingNegative – self limiting Examples: Gaia (Greek for Mother Earth) Examples: Gaia (Greek for Mother Earth)

hypothesis: hypothesis:

The Role of Economics and The Use The Role of Economics and The Use of Modelsof Models

Models: simplified abstractions of reality. It is Models: simplified abstractions of reality. It is impossible to describe every detail.impossible to describe every detail.

Parsimony: select the most impt. features; omit the Parsimony: select the most impt. features; omit the relatively unimportant features.relatively unimportant features.

Everyone uses models: engineers, repairers, dressmakers, Everyone uses models: engineers, repairers, dressmakers, architects, mapmakers.architects, mapmakers.

Purposes of a model:Purposes of a model:– 1) Explain 2) Predict1) Explain 2) Predict

Two possible competing models of future:Two possible competing models of future:– 1) Basic pessimist 2) Basic optimist1) Basic pessimist 2) Basic optimist

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

Is This a Good Model of the U.S.?Is This a Good Model of the U.S.? It does not show how to find: It does not show how to find:

– McDonald’s McDonald’s – librarieslibraries– bowling alleysbowling alleys– baseball stadiumsbaseball stadiums

It does show basic physical relation of each state to It does show basic physical relation of each state to each othereach other

Conclusion: Different models are needed for different Conclusion: Different models are needed for different purposes. Models are never “real.”purposes. Models are never “real.”

The Basic Pessimist ModelThe Basic Pessimist Model Limits to GrowthLimits to Growth, D.H. Meadows et al. (1972); , D.H. Meadows et al. (1972);

Beyond The LimitsBeyond The Limits (1992) (1992)– argued that humanity would soon exhaust natural argued that humanity would soon exhaust natural

resources & die in misery of polluted environmentresources & die in misery of polluted environment– large computer model based on feedback loopslarge computer model based on feedback loops

Conclusions of model:Conclusions of model:– 1) in <100 years society will run out of resources; 1) in <100 years society will run out of resources;

precipitous collapse of economic system; massive precipitous collapse of economic system; massive unemployment, decreased food production, death unemployment, decreased food production, death rate increases, population decreasesrate increases, population decreases

The Basic Pessimist Model (cont.)The Basic Pessimist Model (cont.) Conclusions of model:Conclusions of model:

– no smooth transition; overshoot and collapse no smooth transition; overshoot and collapse

– 2) Partial solutions will not work; even if resource base 2) Partial solutions will not work; even if resource base is doubled, collapse will still occur due to pollutionis doubled, collapse will still occur due to pollution

– 3) overshoot and collapse can be 3) overshoot and collapse can be avoided only if we limit avoided only if we limit population and pollution and stop population and pollution and stop economic growth.economic growth.

Dangers of PrognosticationDangers of Prognostication Many “experts” have made bad predictionsMany “experts” have made bad predictions U.S. Geological Survey in 1920 reported that only 7 U.S. Geological Survey in 1920 reported that only 7

billion barrels of petroleum remained to be recovered billion barrels of petroleum remained to be recovered and would be exhausted by 1934. But by 1934, an and would be exhausted by 1934. But by 1934, an additional 12 billion barrels were discovered.additional 12 billion barrels were discovered.

Paul Ehrlich (“Population Bomb”) bet Julian Simon Paul Ehrlich (“Population Bomb”) bet Julian Simon (economist) in 1980 that five resource prices (total (economist) in 1980 that five resource prices (total value of $1,000)would increase by 1990, but value value of $1,000)would increase by 1990, but value fell to <$500!!! (See Example 9.2, “The Bet”)fell to <$500!!! (See Example 9.2, “The Bet”)

The Nature of the Basic Pessimistic ModelThe Nature of the Basic Pessimistic Model dominant characteristic: exponential growth with dominant characteristic: exponential growth with

fixed limits on resources fixed limits on resources Suppose current reserves of a resource are 100 times Suppose current reserves of a resource are 100 times

current annual usecurrent annual use– if consumption is not growing, resource will last 100 yearsif consumption is not growing, resource will last 100 years– if consumption is growing at 2% per year, reserves will be if consumption is growing at 2% per year, reserves will be

exhausted in 55 yearsexhausted in 55 years– if consumption is growing at 10% per year, reserves will if consumption is growing at 10% per year, reserves will

be exhausted in only 24 yearsbe exhausted in only 24 years

Exponential GrowthExponential Growth A + A(1+g)A + A(1+g)1 1 + A(1+g)+ A(1+g)2 2 +...+ A(1+g)+...+ A(1+g)n n = 100A= 100A A[(1-(1+g)A[(1-(1+g)n+1n+1)/(1-(1+g))]= 100A )/(1-(1+g))]= 100A ((see proof on see proof on

next page)next page)

(1-(1+g)(1-(1+g)n+1n+1) = -100g) = -100g (1+g)(1+g)n+1n+1 = 1 + 100g = 1 + 100g (n+1)ln(1+g) = ln (1 + 100g)(n+1)ln(1+g) = ln (1 + 100g) n = ln (1 + 100g)/ ln(1+g) - 1 n = ln (1 + 100g)/ ln(1+g) - 1 e.g. let g = 2%, then # of yrs until exhaustion :e.g. let g = 2%, then # of yrs until exhaustion : n = ln (1 +2)/ln(1.02) -1 = 54.48 yearsn = ln (1 +2)/ln(1.02) -1 = 54.48 years e.g. if g = 10%, n = 24 yearse.g. if g = 10%, n = 24 years

Exponential GrowthExponential Growth (1)(1) Y = A + AcY = A + Ac1 1 + Ac+ Ac2 2 +...+ Ac+...+ Acn n

multiply first equation by cmultiply first equation by c (2) (2) cY = Ac + AccY = Ac + Ac2 2 + Ac+ Ac3 3 +...+ Ac+...+ Acn+1n+1

subtract (2) from (1)subtract (2) from (1) Y - cY = A - AcY - cY = A - Acn+1n+1

Y(1-c) = A(1 - cY(1-c) = A(1 - cn+1n+1)) Y = A(1 - cY = A(1 - cn+1n+1)/(1-c))/(1-c) now let c = 1+g in the earlier problemnow let c = 1+g in the earlier problem Y = A(1-(1+g)Y = A(1-(1+g)n+1n+1)/(1-(1+g))=A(1-(1+g))/(1-(1+g))=A(1-(1+g)n+1n+1)/-g))/-g)

The Basic Optimist ModelThe Basic Optimist Model Herman Kahn et al. (1976): Herman Kahn et al. (1976): The Next 200 Years: A Scenario The Next 200 Years: A Scenario

for America and the Worldfor America and the World Basic conclusion: 200 years from now humans will be more Basic conclusion: 200 years from now humans will be more

numerous, rich, and in control of the forces of nature.numerous, rich, and in control of the forces of nature. Tampering with the growth process will consign the poorest Tampering with the growth process will consign the poorest

countries to life of poverty.countries to life of poverty. Nature of the Model: “Necessity is the mother of invention”Nature of the Model: “Necessity is the mother of invention”

– new technologies will make resources more availablenew technologies will make resources more available– food and energy will become more abundantfood and energy will become more abundant

The Basic Optimist ModelThe Basic Optimist Model Julian Simon, the late well known population economist, Julian Simon, the late well known population economist, The The

Ultimate Resource Ultimate Resource (1981)(1981)

– As the population has increased, standards of living have As the population has increased, standards of living have increased.increased.

– As incomes have increased, the environment has become As incomes have increased, the environment has become cleaner.cleaner.

– A modified version of this hypothesis is known as the A modified version of this hypothesis is known as the Environmental Kuznets Curve. As per capita income increases, Environmental Kuznets Curve. As per capita income increases, pollution first increases, reaches a maximum, than declines. It pollution first increases, reaches a maximum, than declines. It has an inverted U-shape. We will discuss this more later.has an inverted U-shape. We will discuss this more later.

Ecological Economics vs. Ecological Economics vs.

Environmental EconomicsEnvironmental Economics Some similarities, some differencesSome similarities, some differences Environmental economics: based on standard Environmental economics: based on standard

paradigm of neoclassical economics which paradigm of neoclassical economics which emphasizes maximizing human welfare and emphasizes maximizing human welfare and using economic incentives to modify using economic incentives to modify destructive human behavior destructive human behavior

Ecological economics: uses a variety of Ecological economics: uses a variety of methods, including neoclassical economics methods, including neoclassical economics

The Road AheadThe Road Ahead natural sciences relegate humans to trivial rolenatural sciences relegate humans to trivial role economic models recognize that humans react to changes economic models recognize that humans react to changes

in the costs and benefits of using natural resourcesin the costs and benefits of using natural resources direct solutions often exacerbate the problemdirect solutions often exacerbate the problem

– simple solutions of the government often fail for predictable simple solutions of the government often fail for predictable reasons reasons

– e.g. rent controls reduce the supply of housinge.g. rent controls reduce the supply of housing– e.g. natural gas price controls reduce supplye.g. natural gas price controls reduce supply– Bottom line: CORRECT government solutions are neededBottom line: CORRECT government solutions are needed

The IssuesThe Issues 1) Are resources finite? Is growth exponential?1) Are resources finite? Is growth exponential?

If limits do exist, have they been measured correctly?If limits do exist, have they been measured correctly? 2) How does the economic system respond to 2) How does the economic system respond to

scarcities? Does it involve mainly positive feedback scarcities? Does it involve mainly positive feedback loops? Would it intensify or ameliorate any initial loops? Would it intensify or ameliorate any initial scarcities?scarcities?

3) What is role of political system? Is gov’t 3) What is role of political system? Is gov’t intervention benign or exacerbating?intervention benign or exacerbating?

The IssuesThe Issues (cont.) (cont.) 4) Can the economic and political situations 4) Can the economic and political situations

respond to uncertainty in reasonable ways?respond to uncertainty in reasonable ways? 5) How do we alleviate current poverty without 5) How do we alleviate current poverty without

harming future generations? Is sustainable harming future generations? Is sustainable development possible? Can short-term and development possible? Can short-term and long-term goals be harmonized?long-term goals be harmonized?

The EndThe End