China's non-promise

Today China promised that it will seek to reduce the 'carbon intensity' of its economy - the carbon emissions per unit of economic output - starting from 2020.

Hooray, I hear the world shout. And endless editorials have already hit the newstands, proclaiming this a great day for humanity and an important step towards a successful climate conference in Copenhagen.

But this is a complete non-promise. Any economy undergoing development will start to eventually reduce the carbon intensity of its economic activity through basic processes of technological advance and cost reduction. So China's carbon intensity would fall even if it had no environmental targets at all. All more developed countries have already done this. China has not in fact promised to anything other than what they were going to do anyway, which is pursue economic growth. Nor do they have much choice: having embraced capitalism, there is no option, especially for an industrially backward country.

Nor is it likely that this will do much towards solving the world's environmental problems. Although it obviously makes a difference, its net effect will only be positive if China's rate of economic growth (i.e., the total number of economics produced) is not so great that it completely negates the reduction in intensity per unit. But China's growth rate has hovered at the 8-10% mark for decades now, and there is no realistic chance that it will reduce its carbon intensity at anything alike this rate. Also, the reduction is only relative to 2005 - a very high baseline. So even after 2020, it is highly probable that China's carbon emissions will still be growing.

And up until 2020? Again, present growth rates - which do not seem to have been dented much by the current global recession - mean that China's economy will have more than doubled in size. Given present carbon intensity levels, that means 12 billion tons of carbon. And after 2020, it will keep on growing. Given that the estimated sustainable level for the whole planet is about 20 billion tons, what satisfaction are we to get from China's non-promise?

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The worst threat to the environment on Earth

By far the single best demonstration that business is about profit, not any sort of social or environmental responsibility, is the Alberta Tar Sands. Billed by Greenpeace and others as the largest industrial and energy project, the biggest capital investment and the worst environmental crime on earth, it really does have to be seen to be believed.

For a first-hand view, click here. Right now.

The real point? That tar sands make no environmental or social sense at all. Imagine someone replacing Florida with a slag heap - that's the new Alberta.

But for business? Lots and lots and lots of money. A no brainer, really. Say goodbye to Alberta now, children - and don't worry about the mess. No, I don't ahve any plans to clear up after me, but always remember - Daddy Business knows best.

Economic myth no.2: Trickle-down economics

One of the mainstays of market economics is the idea of trickle-down – that it does not matter that the rich corner the money, because eventually they will spend it only lesser mortals, who will then benefit from it.

This is not a very convincing idea, yet it stays on the lips of conservative politicians and economists everywhere. And it’s not true, of course – not even about the money, let alone the real economic consequences. Starting with the real economy, what happens when a rich person acquires money and spends it as a private individual? They spend it on, say, a house. Eventually everyone who works on the house is paid of course – hence the trickle-down. But what happens to the real human effort and the resources that go into that house? They are the real value in the economy, and what happens to them? They remain in the hands of the owner. They enter the economy through the paid work, but promptly leave society in the form of a private dwelling that absorbs a disproportionate amount of social activity and resources. That time, effort and resource can never be used by society again.

Contrast this to what would have happened if the same amount of money had been spent on, say, new classrooms and facilities for the local school. The same effort and resources would have been expended, but this time all those who built it would still benefit from the product of their work – the school itself. This remains in circulation in society, as it were, in complete contrast to the private home. So trickle-down economics is aptly named – only a trickle of the great flood of real social value benefits society as a whole, while much the greater part remains in the hands of the wealthy in the form of the real goods and services they enjoy.

What about the money, then? Surely that has to circulate? Some of it, such as the payment for work and materials, yes, but not all. A good deal will be set aside for investment. And what is investment for, if not to buy further property that both generates further income to be used for socially exploitative purposes and places more of the real economy into private hands? Of course, the money is eventually released, but only under conditions that not only repeat the same cycle but also reinforce the control of the propertied over the rest.

Zeno’s paradoxes

Zeno’s paradoxes are amongst the most venerable and to many impenetrable of all philosophical puzzles. There have been many attempts to explain Achilles and the tortoise, the arrow paradox and the so-called dichotomy paradox, often illustrated by 'proving' the impossibility of a frog ever managing to hop its way out of a pond. Apparently there were about 40 in all, and were originally created by Zeno of Elea to illustrate Parmenides’ conception of the world as logically changeless by showing that much of what we believed we witnessed in the world simply could not be happening.

This view has undergone a lot of humorous parody and satire, from Zeno’s contemporaries to Terry Pratchett’s occasional sketches of ‘Ephebian’ (i.e., Greek) philosophers deducing all sorts of wonderful things. All in all it tends to remind one of the wonderful line in Monty Python and the Holy Grail, ‘and that, my lord, is how we know that the earth is banana-shaped’.

There have been plenty of attempts to refute Zeno too, involving ideas like infinitesimals (roughly speaking Aristotle’s answer), which works quite well. For we have known since Archimedes that the sum of an infinite number of progressively smaller amounts will add up to a finite total. Or rather, it will tend towards a finite result, which is a problem, since it is not obvious that this is not actually simply a mathematical way of simply restating the original paradox, because this reasoning does not, in itself, conclude that the frog ever actually reaches the side of the pond.

Another use of the infinitesimals inherent in Zeno’s original paradoxes is to reject them. If it simply isn’t true that there is always a point lying between two other points, no matter how close together, to which the frog/ arrow/ Achilles/ whatever can move next, then it must make definite progress and eventually Achilles will be the winner. You can also reject the idea that things are anywhere definite or finite at any given point in time, but I think it’s a bit much to have to rely on relativity or the uncertainty principle to beat up classical philosophers!

I have never quite understood why these paradoxes seem to attract solutions like this. Perhaps I am missing something, but hasn’t Zeno actually defined the problem in such as way that it cannot be solved? He describes all these events in terms of them never being concluded. For example, if Achilles’ movements are defined in terms of reaching where the tortoise was last – a place from which it must have moved on – then plainly he can never overtake it in this framework. But that is only to day you can define a problem in terms of failure, which is what Zeno has done. If at each step Achilles' motion is defined as reaching only to where the tortoise last was, he cannot have reached where it is now. So the problem is actually stated in terms that permit only failure. In other words, failure is not a paradoxical result of this overall situation but a simple deduction from its definition.

There is no need to appeal to any fancy mathematics. All you have to do is to realise that this is not a paradox at all, but rather the description of an activity in negative terms that cannot be shaken off without seeming to disregard the original problem. Zeno’s paradoxes strike me as valid but uninteresting – except for what they tell us about how philosophers and mathematicians reason.

Quaking in their Gucci boots

... as George Monbiot described the bankers the other day[1], writing about the British government's utterly supine response to the banking crisis and those who caused it. Apparently Brown and Darling have declined to learn the lesson Nassim Nicholas Taleb suggested last April - that 'People who were driving a school bus blindfolded (and crashed it) should never be given a new bus'. In fact it's pretty hard to identify even one of Taleb's 'ten principles for a Black Swan-proof world' [2] that has found its way into public policy.

1. What is fragile should break early while it is still small. Nothing should ever become too big to fail.
2. No socialisation of losses and privatisation of gains.
3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus.
4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks.
5. Counter-balance complexity with simplicity.
6. Do not give children sticks of dynamite, even if they come with a warning.
7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”.
8. Do not give an addict more drugs if he has withdrawal pains.
9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement.
10. Make an omelette with the broken eggs.

No, as far as I can see it, not one of these lessons has been learned. Well done, chaps. Apparently, say Brown and Darling, it is 'impractical' to change the system so that we can exercise any control over it. Which can only mean that that system is out of control, but we are not worried enough about its unintended effects to do anything about it.

But is Taleb's own prescription enough?

Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

But even if we did all this (personally I love the one about abolishing the Nobel prize for economics), would Capitalism 2.0 really be the answer? We got into the present crisis by allowing capitalism's basic rules - the structures and interests that underpin all forms of capitalism, which Taleb and other critics from within show no inclination to criticise, even in the name of Capitalism 2.0 - to play themselves out with unprecedented freedom. This particular 'black swan' was no improbable mutant but the entirely predictable (and predicted on both right and left) effect of capitalsm's most basic causes, that was only inconceivable to those of the Thatcher/Reagan generation of politicians and the idealists of economic theory for whom, no matter what the question, unbridled capitalism was the right - no, the righteous - answer.

Meanwhile, George Monbiot's own diagnosis - that no one bears more responsibility for the current mess than Gordon Brown and Alan Greenspan - essentially that this was a crisis induced by political irresponsibility and weak regulation - has some merit, but by focusing on the individuals or even on rather secondary functions of the economy rather than the structure of the economy itself - distracts attention from the real problem. The crisis was not created by poor management of our economic system; no, it was created by the very nature of that system.

So what are we looking at here? Both capitalism's intellectual critics and its would-be political masters are unable to see what got us into this, or that there is no version of capitalism that will not, eventually, pull the same trick.

Not that capitalism is an unqualified disaster. Far from it - it is after all only through capitalism that the modern world, with all its fabulous wealth and freedom, took shape at all. But it must be understood that capitalism is rather like adolescence: a huge improvement on its predecessors, but not something to be hung on to for its own sake. There is life after the teens, and there is history after capitalism.

[1] 'The Great Cop-Out,' Monbiot.com, 8 September 2009.
[2] 'Ten principles for a Black Swan-proof world', FT, April 7 2009.

Market irrationality and the environment

There are in fact at least five ways in which the rationality of markets can be challenged, and all of them have implications – not all negative - for the environment.

Firstly, sometimes people just aren’t rational by any standard. However, this is not all innocent folly or individual caprice. Not only are individuals open to irrational behaviour on their own account, but they can often be manipulated, stampeded and panicked into actions that are, from their own point of view, profoundly irrational, but that are very much in the economic interests of others.

This possibility is routinely exploited through (and often by) the mass media, of course. In the absence of a systemic account of the ways in which individuals in the economy are behaving irrationally, it is hard to say just what that means, or what it does to conventional economic theory apart from render it more or less fuzzy. But whatever the answer is, it is unlikely to figure in conventional economic theory, as it my suggest that the power to exploit and control is fundamental to our economic system, yet decidedly not the benign (or at least neutral) thing markets are supposed to be.

Secondly, if by ‘rational’ we mean, ‘pursuing economic self-interest’, it is obvious that a great deal of human behaviour can’t be forced into this particular (indeed, peculiar) mould. That does not mean that we are irrational – only that the rationality according to which we operate is not narrowly economic. I doubt that a committed church-goer tithes a significant fraction of their income out of reasons of economic self-interest, and the idea that people contribute to charities out of a very indirect calculation that they may need that charity’s services one day is surreal, to say the least. It would be doubtful to propose that a person on the streets of Manchester or San Francisco contributes to Oxfam because they expect to need Oxfam’s support any time soon. People have values, goals, interests, relationships, and any number of other motives that affect their behaviour, all of which can be pursued rationality without ever reflecting economic rationality.

This can be extremely fortunate for the environment, because it means that people are willing to pay for environmental management even when it ‘harms’ their economic self-interest. Unfortunately there are quite a few ways in which the same ability to rise above economic self-interest is likely to harm the environment – as when a certain kind of fundamentalist is persuaded that environmental problems are signs of Last Days, or that any kind of collective action is ‘communism’.

Thirdly, when we hand over the direct management of our economic interests to others (typically investment professionals, the senior management of the firms by which we are employed, our government’s treasury department, and quite a few others), this creates a dilemma for the theory of economic rationality. Either they pursue our interests on our behalf, and not their own, in which case they are not being rational from their own perspective, or they do the reverse – in which case they aren’t being rational from our perspective.

This is the problem of ‘agency’, as economists like to call it, and it had a major impact on creating the recent global economic crisis. Investment banks hotly pursuing their own interests netted themselves billions in fees for investment advice and dubious sales, not to mention outright fraud, but added little value as far as the rest of us – including their immediate customers – were concerned.

From an environmental point of view this could prove to be a serious issue, as it is crucial that environmental problems are seen as affecting all of us equally, and, conversely, that one group cannot evade the consequences by exploiting another. Unfortunately, although this may be true in the long run, especially if the problems turn out to be still more severe than most people expect, it is unlikely that such a long-term perspective will be the rule. Indeed, we can certainly expect some groups – from privileged individuals up to corporations and national governments – to do their utmost to exploit the weaknesses of others.

Fourthly, there is the more profound kind of irrationality that follows from the fact that what is rational for an individual can be counterproductive, or even outright destructive, when replicated all across a market.

From an environmental perspective this is all too common, as can be seen from the ratchet effect of many investments. To take a very parochial example, right now the London underground train system (the Tube) is being blighted with hundreds of screens that show dynamic advertisements in place of the old posters. This raises the impact of these advertisements, but they probably also represent only the thin end of the wedge, and we can certainly expect these deeply annoying devices to become the norm. But with that, all advertisements will be restored to an equal footing, so no advantage will be gained by using electronic screens. But no one will be able to go backwards either, to old fashioned paper posters. From an environmental point of view, these necessarily lead to more material resources – electronics, energy, and so on - being invested to achieve absolutely no net material benefit (as opposed to monetary) value.

Finally, there are situations – some extremely widespread – in which the economically ‘rational’ option simply isn’t available. In any market that is dominated by large-scale capital (which is to say, any area of heavy industry, any long-term commitment, and so on), rapid movements to reflect a sudden change of circumstance are simply not options.

For example, if a lower-cost operator suddenly enters the market – as often as not taking advantage of the most recent methods, processes, technologies, etc. – they can price their goods and services below more established operators, who are still committed to the old approach. The latter may have the option of moving to a lower-cost operation too – but the long-term nature of many financial commitments may mean that the old investments still have to be paid off, and the arrival of a radically new operating model may mean that the systems and resources by which they currently operate simply cannot be sold off, because no one want them.

From an environmental perspective, this is almost invariably disastrous, as it obliges the owners of that capital to carry on using it, regardless of the environmental consequences. A power station or car plant built today must be operated for decades to come if it is to be paid for, and its proprietors will lobby for the continuation of dirty energy and transport for the same period.

And all that is leaving aside the conscious exploitation of other complexities such as 'informational asymmetry' (i.e., they're lyng to you). All in all, the case for the ‘rationality’ of markets, or for the so-called ‘efficient markets hypothesis’, is not strong. As far as the environment is concerned, it is pretty disastrously flawed.