Why market economies cannot prevent overshoot

[GliderGuider]

1. A sustainable economy can be so only by avoiding the consumption of natural capital. This is just the flip side of saying that all practices must be renewable. The consumption of natural capital can proceed to the point of overshoot, defined as the point at which the human population cannot be sustained without continued consumption of natural capital. Another name for overshoot as defined here is "imminent doom": in overshoot catastrophic collapse is inevitable, by the above definition of overshoot and the finite nature of natural capital.
   
   
2. Until natural capital is in short supply, it is cheaper in every sense except the disappearance of support for future lives to consume natural capital rather than to consume only income from natural capital. There is therefore is no market mechanism that can prevent the consumption of natural capital. As a result any sustainable economy must prevent the consumption of natural capital by non-market mechanisms.

This is why I am utterly certain that tinkering around the edges of the problem, even with renewable resources and birth control, is a fool's errand. Absent a wholesale shift away from a market economy, we will go over the edge. Over the next 25 years I predict we will see the emergence of more and more command economies around the world, as the requirement for rationing natural capital and forcing a shift to lower-energy sustainable behaviour (in everything from food to oil to births) becomes self-evident.

Any thoughts or comments?

[brokensymmetry]

1. Well....

I agree completely that overshoot will occur. Indeed,
I believe we are presently in overshoot.

I also agree that market economics cannot deal with
the problem. The classic problem is twelve people
on a failed airplane with 10 parachutes. How much
is a parachute worth? And with overshoot, the
analogy is apt - because the resources in question
aren't just nice to have, they represent survival.

I'm not so sure about command economies, though.
One needs a lot of energy to send armies or police
to various areas, in order to maintain the control
implied by a command economy. And, too, you need
excess people to run the bureaucracy for such
a method.

I suspect we'll see relocalization, and the
fragmentation of economies and power structures.

But I also expect the beginnings of a massive dieoff
in less than 25 years. Quite a lot less.

[papau]

2. localized non-polluting transportation systems, farms and gardens, and renewable energy vs trade

benefits and better / higher GDP?

What is the invisible hand that gets us to relocalization?

Why would trade barriers be better than trade with eco/ labor / human rights rules?

Does overshoot equate to demand and that equate to innovation and a better life?

Every shortage of anything leads to finding ways to do more GDP with less of whatever?

I do not see the need for or the benefit of relocalization - although I realize the idea has its own following amongst our fellow eco/energy concerned citizens.

But I also do not see any need to set us up for failure and massive death by demanding innovation that is not here yet -

I guess I am in the moderation camp.

[brokensymmetry]

4. You ask about the invisible hand...

the answer, I think, is both simple and direct. Energy costs.

If you think about it, gasoline is incredibly cheap. Compare
the price to bottled water or a soft drink, and it's one of
the great bargains in the world.

If energy prices go up sharply in relation to everything
else, it seems likely that the amount of transportation
will be reduced. Extrapolating, that could well mean
loss of economies of scale - for example, great highway
systems would be less worthwhile, with a smaller constituency.
This would make transportation of goods slower, more costly,
and less dependable - hence, more costly.

And when that happens, the load of wheat that went from South
Dakota to a mill in Kansas, which then sent the flour to a
wholesaler, who in turn sent it to a bakery, which then shipped
a loaf to a warehouse, which in turn sent it to a supermarket - and
finally to you...that load of wheat becomes expensive due to
the movement costs. So there becomes an advantage in making do with
something having a smaller energy cost component.

Notice I am not saying that relocalization will be compelled - rather,
it will become the only viable option for the vast majority of
consumers.

[papau]

6. We learn how to cheapen the cost of transport every year - this invisible hand may

take a long while to have an effect.

Indeed it depends on energy being resource limited - and electricity via solar in its many non-fossil fuel modes may not be all that limited

[brokensymmetry]

7. That's the 64E+12 dollar question...

No one really knows. My conclusions
are different than yours, but I cannot
prove that I'm right.

So I guess we'll have to wait and see.

:shrug:

[GliderGuider]

3. I don't see how a fragmented or relocalized economy is by definition sustainable

They may be more sustainable because small numbers of people are easier to influence away from unsustainable practices. But even in a small intentional community the only way to prevent someone from using natural capital (for example buying diesel fuel for a tractor instead of hitching their wife to the plow) is by ordering them not to, and instituting sanctions for doing it. If the market is available and legal to access, it will always be a temptation. In addition, I suspect that most such communities will at some point come face to face with the Tragedy of the Commons.

The only sustainable alternatives to market economies that I'm aware of are command economies and regulated barter systems, in which the regulations keep people from making profits that can end up violating the no-growth principle of sustainability. Are there others that are by their very nature sustainable - i.e. that can prevent the use of natural capital?

[hansberrym]

5. Can't agree that a command economy is the answer.

What would government do in case scenario such as yours? Would they employ forced labor to produce fuels? Would they set a price at which producers must sell?


If you think that the supply of fuel available to heat our homes or power our cars can be done on a command basis (price/availablity set by government) you might want to think about the gas lines back in the early 70's.


While gas prices have varied widely recently, the gas stations have a supply when we need it.

There will most likely come a time when the natural supply of oil runs low and gasoline gets so expensive that we won't want to, or be able to, purchase the levels that we do today. But there will be some gasoline for sale. As the price rises people will be forced to look for other means of transportation. Right now, there is very little market pressure so things wiil continue until the supply really is tight.


I don't buy into the catastophic collapse scenario either. When prices for fuel really start to rise in a big way, then people will change their habits. But unless there is some widespread sabatoge to the refineries, the supply will not simply dry up overnight.

The price of fuel will increase greatly before the natural supply actually runs out. And so as long as market forces are allowed to set the price, there will be some for sale right up to the last drop.

If prices shoot up to 10 or 20 dollars a gallon, individuals will make very rapid choices as to how they will ration their money to produce the best effect for themselves. Some people will change their commuting habits, other will heat their homes differently (maybe just heat one or two rooms and only to 50 degrees while wearing sweaters.



Your second point:
Until natural capital is in short supply, it is cheaper in every sense except the disappearance of support for future lives to consume natural capital rather than to consume only income from natural capital. There is therefore is no market mechanism that can prevent the consumption of natural capital. As a result any sustainable economy must prevent the consumption of natural capital by non-market mechanisms.

The Command Economy does not provide answers. Pollution, short term thinking, and exploitation of natural resources were arguably much worse in command ecomomies such as the former soviet bloc, than in the West where market forces are regulated.

Government regulation of markets, rather than the command economy, leads to the optimum result.

In command economies, government is left to be the judge of its own actions. This would be like playing ball when the umpire is on the other team. Governments are just as prone to short term thinking when their influnce/power is on the line as individuals are, only government has much more power.

In a regulated market economy, government is the umpire between producers and consumers, and since government is in a neutral position they can take a wider view and be in a much better position to answer your concerns (#2) than a command economy.


An unregulated economy would depend completely on the vision and forsight of individuals. I disagree that there is no concern for future natural resources, as most every individual cares at least about their own futures, and about their own children's futures. Most business's intend to operate as going concerns rather than just for today. Unless a company has no capital whatever, it would be silly to run the business into the ground by not caring about how it can be kept operating in the future. That said, I still would favor some regulation over a totally unregulated economy.

[GliderGuider]

8. Non-market economies don't have to be Soviet style command economies.

Taking the Soviet system as the canonical example of a command economy is as narrow as saying the American form of democracy is a Platonic Ideal. Of course pure centrally-planned economies are open to abuse by the planners, but market economies are merely different in this regard, not better. If run by men of good will (a rara aves indeed) both systems can provide effective resource allocation, though each will operate best under different circumstances. Free markets, for example, seem to operate best when there is little penalty for using up a resource, and substitutes are available at modest marginal cost.

The point I'm trying to make is that if one wants to have a truly sustainable economy, one in which only the interest on natural capital is ever consumed and the capital is never touched, then a pure free market economy will not work. It is always cheaper to use a bit of capital than to accumulate the same amount of interest, and as long as people have ready access to natural capital they tend to use it preferentially.

While traditional supply and demand price elasticities are invoked to reassure us that Adam Smith will provide, this can only be true in a perfectly informed and transparent marketplace, where externalities are factored into the equation somehow. This manifestly does not work in the case of oil pricing for instance. Factors that should influence the price would include the impending supply shortfall, the remaining stocks, the extent to which our children and grandchildren will be denied our civilization's master resource, and the availability and cost of effective substitutes. None of these factors come into play, making a mockery of the simplistic claim that higher prices will reduce demand and all will be well. If the price does not reflect the true circumstances of a resource, the signal it sends is erroneous and therefore largely useless as a guide to behaviour. In the case of oil, when gasoline hits $20/gal it will be far too late for any mitigation of the decline in supply.

So, as you point out, some degree of regulation will be required. I look on the situation as analogous to the food and fuel rationing that happened in Britain during WWII, though with the caveat that this would be a permanent situation. It may be that some societies will choose to ration by price, and let those who cannot afford the resource fall out of the market (i.e. die). Others may choose not to do that, and will institute non-price rationing which will keep more people alive. In the case of a resource like oil, however, neither of these approaches is sustainable, because any system that permits any use of non-substitutable non-renewable resource is by definition unsustainable. The only answer is to have some sustainable alternative that is cheaper than the non-renewable one. In many cases such alternatives may not be available, or at least not available in the required timeframe.

I agree that there is a concern for the future availability of resources. However, this concern is primarily a human concern, and is not built into the market mechanism. It's an externality.

[hansberrym]

9. I still have to disagree.

Factors that should influence the price would include the impending supply shortfall, the remaining stocks, the extent to which our children and grandchildren will be denied our civilization's master resource, and the availability and cost of effective substitutes. None of these factors come into play, making a mockery of the simplistic claim that higher prices will reduce demand and all will be well. If the price does not reflect the true circumstances of a resource, the signal it sends is erroneous and therefore largely useless as a guide to behaviour. In the case of oil, when gasoline hits $20/gal it will be far too late for any mitigation of the decline in supply.


In fact the question of remaining stocks is a factor in the price of fuel.
If we did not have many years of supply in the ground, then prices would rise very quickly. However we have decades of identified Oil reserves and centuries of Coal reserves(and possibly much more still undiscovered reserves of fossil fuels), and so there is no current pressure to raise prices steeply. (i.e. there is no fear by producers that their pipelines, refineries, mining operations, etc. will soon become worthless because they know that those facilities can operate at capacity for many years.



Of course the Soviet model is only one example of a command economy, but command economies all share the disadvantage that I pointed out earlier in that the government is both a player and the umpire -a situation that is inherently problematical. All systems share the problem of reliance on fallible human beings, but the command economy has an inherent defect that a regulated market economy does not.

[GliderGuider]

10. Hmmm

However we have decades of identified Oil reserves and centuries of Coal reserves(and possibly much more still undiscovered reserves of fossil fuels), and so there is no current pressure to raise prices steeply.

Oil is the master resource of our industrial civilization. The fate of oil is the fate of society - as goes oil, so goes humanity. Let us assume you are correct, and we really do know with a high degree of accuracy what our remaining reserves are. Over the next few decades we will burn more and more, there by pumping more and more CO2 into a warming world. During that time the annual supply of oil gradually declines, until finally it's gone. So we are mere decades away from the end of industrial civilization as we know it, with a massively warmed world at the end of it, but oil still costs less than bottled water? The current price of oil is a major indication of the failure of market prices to act as a true signal of the situation surrounding a resource.

BTW, we have no accurate picture of the remaining reserves of oil and gas. Some estimates say we have less than a trillion barrels of recoverable oil left, other say we have three trillion. How can the market price a resource accurately in the face of that kind of uncertainty?

[hansberrym]

11. Is the glass half full, or half empty ?

So we are mere decades away from the end of industrial civilization as we know it, with a massively warmed world at the end of it, but oil still costs less than bottled water? The current price of oil is a major indication of the failure of market prices to act as a true signal of the situation surrounding a resource.

That is one way to look at it, but I would say we have (at least) decades to adjust to the much lower supply/higher prices of fossil fuels. The Market hasn't made the adjustment in price that you advocate because the shortages have not hit yet. But the market will adjust long before the supply of fossil fuels is exhausted, and prices will go up (assuming an alternate source of energy is not had).


BTW, we have no accurate picture of the remaining reserves of oil and gas. Some estimates say we have less than a trillion barrels of recoverable oil left, other say we have three trillion. How can the market price a resource accurately in the face of that kind of uncertainty?

How can a Command economy price that same resource accurately in the face of such uncertainty? The lack of certainty is a factor for any economic system.

While do not have perfect information, that is not to say that we don't have any reliable information, or that the market is oblivious. The market will respond when we get to actual shortages, or at least when enough producers/consumers become concerned that shortages are just around the corner. When we get to the point where the world's oil fields are not meeting demand, price will go up. But there is an awful lot of consumption right now that is non-essential and so "shortages" from the view of current consumer practices, are not shortages that would lead to a collapse of society overnight.

The market has the advantage of operating on what we know with a relatively high level of certainty(short term supplies) but the command economy that you advocate would be acting where there is the highest uncertainty.

Furthermore, this doesn't have to be all or nothing, the choices are not merely a command economy for energy production/consumption versus an unfettered energy market. Regulation in the form of higher taxes on fossil fuels would discourage unneccesary consumption. and would encourage the sorts of changes that will have to take place eventually if inexpensive alternatives to fossil fuels are found.

[Dogmudgeon]

12. The problem with market economics

There are several, but the Big One is simple, and the market economics have to make an effort to overlook it:

Markets are NOT driven by need. They are driven by demand. If you are unable to demand (legally or, especially, economically), then you don't exist; perforce, you die.

Many libertarian/free-enterprise/market thinkers pay lip service to this. Ayn Rand, for example, makes a big deal out of her tautology "life qua life". But the Objectivists® and other libertarians tend to use that as a way to support their advocacy of wars and anti-abortion crusades, NOT individual, human, and biological survival.

Goods and services are allocated by those who have money. Or, more to the point, power. To use the libertarian's explanation, money allows you to use the Headgun. (As in, "gummint puts a GUN to your HEAD!") But try to feed yourself on your own initiative, without money, in a market economy. In an economy where everything is owned, you are at the mercy of the market, even if you own capital.

Let us keep in mind that the state can make marijuana and firearms illegal, but the market can (and frequently does) make being young/old/black/white/female/male/poor/leftist illegal in its own, highly effective, way. Instead of prison, the market imposes homelessness; instead of lethal injection after a trial and several appeals, the market will hire private cops to immediately shoot you "in good faith" in the name of protecting its property.

The market, you may say, must act rationally in order to survive. Individual allocation decisions are ideally rational, but in reality, irrationality dominates all markets. Rational Choice Theory posits that market economics will result in a near-perfect allocation of resources, but history shows that it's only a little better than "command" economies -- and that's only with certain kinds of economic transactions. Thus, market economies are very good at accumulating wealth, but its distribution is so lopsided that the low-tax, ultra-rich USA has an infant mortality rate that exceeds that of impoverished, Communist Cuba.

The reason why many of us here appear to support command economies is because the only rational choice we have left in dealing with these emerging crises (having wasted 30 years by cracking wise about singing Kumbayah) is by "commanding" (with the Headgun) that our common survival be made a priority.

So, where's that "life qua life"?

Life itself has become a commodity that must be paid for. It would work fine if we all emerged from the womb with a large bank account -- like Paris Hilton or David Nolan -- but all we have is our labor; and if said labor is not demanded by the totalistic market, fuckèd be our name.

This labor slavery, of course, is attractive to the capitalist. It allows him to issue the commands and hold the Headgun, all with complete moral impeccability. In a post-collapse world, out-and-out slavery will re-appear under a new and improved name, guaranteed, and backed up by big gummints espousing Capitalism, Socialism, or some new Ism that in turn has the self-proclaimed blessing of God, Common Sense, and The Science.

Now, in your words, you "don't buy into the catastrophic collapse scenario". As with most lotteries, no purchase is required. Collapse scenarios are the most likely scenarios with our kind of economic growth. Continuous growth eventually meets certain limits of the market, the environment, or human ingenuity. If even one of these limits prevents people from acquiring a needed resource, such as food, people will die. This is why many of us "buy into" the idea of overshoot followed by collapse. Not only do most of the models predict it, but it has been observed in nature and in previous human societies far more often than not. The goal is to find homeostasis. But long-term, sustained homeostasis has never been observed to occur in human economies of more than a few dozen people. Ever.

The overshoot and collapse scenario, therefore, is a product not of some leftist intellectual's dreams of revolution and dancing in the streets with the brothas, but from decades of observation of human and non-human societies. The canonical material is in biology texts, not treatises on political economics.

To use the libertarian/sci-fi geek/Darwin Awards catch phrase, "it's evolution in action, bwa-ha!"

Being told to plan for the future by "command" is the least odious of the choices ahead of us. But I find it most likely that the commands, when they are issued, will rather transparently be part of a massive last-chance power grab designed to allow the powerful to survive by fleecing the rest of us right before the descent into the abyss. There will be too little done, too late, and the burdens will fall on those who have no part in the distribution of resources.

And then, many people will die. But the Market will survive.

--p!

[hansberrym]

13. Why I don't buy into the catastophic collapse scenario

As you say...

Markets are NOT driven by need. They are driven by demand. If you are unable to demand (legally or, especially, economically), then you don't exist; perforce, you die.

...but then much of our current consumption is not about survival. Much of it is merely entertainment and convenience. As a society, and most of us as individuals, we could make do with much less than we have now, so there is a built-in buffer. As the supply of fossil fuels become scarce, and price of fuel rises sharply, people will alter purchasing of entertainment, convenience, etc, to buy food and other neccessities (which will also rise in price due to increased costs of production). This will not happen overnight and markets will have time to adjust and people will make choices. The continuance of programs such as food stamps, WIC, etc. would prevent those who are already living on the edge(currently just able to buy neccessities) from starving.



Do the advocates for a command economy expect that government can plan the lives of 300 million US Americans better than they can? George Bush as the Decider has been catastophic in the areas that he is constitutionally empowered to act, and catastrophic in areas that he simply assumed authority, so I can not imagine giving the government more authority over our lives.


Why I don't have faith in command economies:

But I find it most likely that the commands, when they are issued, will rather transparently be part of a massive last-chance power grab designed to allow the powerful to survive by fleecing the rest of us right before the descent into the abyss. There will be too little done, too late, and the burdens will fall on those who have no part in the distribution of resources.

Your words reflect my own lack of faith that centralized power/centralized decision making will actually be exercised for the benefit of society as a whole, but rather for specific interests, and likely for the interests of the ruling classes, or for ideological purposes.



Now, in your words, you "don't buy into the catastrophic collapse scenario". As with most lotteries, no purchase is required. Collapse scenarios are the most likely scenarios with our kind of economic growth. Continuous growth eventually meets certain limits of the market, the environment, or human ingenuity. If even one of these limits prevents people from acquiring a needed resource, such as food, people will die. This is why many of us "buy into" the idea of overshoot followed by collapse. Not only do most of the models predict it, but it has been observed in nature and in previous human societies far more often than not. The goal is to find homeostasis. But long-term, sustained homeostasis has never been observed to occur in human economies of more than a few dozen people. Ever.


I agree to a point with your "homeostasis" remarks, but you are not differentiating economic growth and population growth. The Neocon agenda(and other political groups advocating open borders ) is to spur economic growth by increasing population growth through immigration. They are in effect sidestepping the homeostasis problem rather than meeting it head on.

Note that the US and many other countries have achieved zero population growth in their native born populations (birthrates at or below replacement levels)without employing command economy practices to limit population such as in China, so it can not be maintained that only command economies can bring us to zero population growth.