These days it is almost a given that economics is not grounded in reality. As the old joke has it:
Q: What do you call an economist who makes a prediction?
The failure of thousands of extremely well-paid economists to see the 2008 crash coming did irrevocable harm to a discipline that has more in common with astrology than science. The discovery that, at least prior to 2008, at no time during a three year economics degree course would a student be taught where money comes from is shocking. Even more shocking – given the everyday experience of millions of people – is mainstream economists’ ongoing claim that debt is unimportant to the functioning of the economy. But even these fundamental flaws in economics pale into insignificance behind the arrogantly anthropocentric faith that energy and resources together with pollution and waste, can be treated as “externalities” that can be taken for granted. That is, that our finite planet will always provide us with the energy and resources required by a growing economy, and that our precious biosphere will always be able to process the waste and pollution that we continue to spew out as our global economy grows.
Most economists are taught to view the economy as little more than a circulation of inputs and outputs between firms and households:
As scientist turned ecological economist Charles Hall points out, in any truly scientific discipline such a view of the world would get an A+ for imagination but an F- for any connection with the real world. For Hall even the simplest model of the economy would have to include all of the earth systems that allow humans – and thus our economy – to exist at all:
There are no “externalities.” And just because we managed to get to where we are without destroying our habitat and exhausting our energy and resources is no guarantee that we can carry on with business as usual indefinitely. Indeed, there is growing scientific consensus that business as usual is falling apart before our eyes.
But if economics has done us a disservice by failing to properly understand the holistic underpinnings of the economy, a similar, but reverse criticism can be made of the natural sciences. Just because mainstream economics is demonstrably unscientific does not mean that the economy is not a key determinant both of the way energy and resources are deployed, and of the uneven impacts of environmental damage.
One example of this can be seen in a new report into the impact of climate change on global fisheries. This suggests that the UK is the third least vulnerable country out of the 147 countries evaluated. While it is undoubtedly correct that small, poorer countries are the most vulnerable, by excluding consideration of the broader economic impacts of climate change, the paper provides a false sense of security to countries like the UK and the climate change denying USA (the sixth least vulnerable nation according to the paper). This is because the paper fails to examine a far more important question – whose populations consume those fish?
One of the changes that is obvious enough to anyone who stays up to date with current affairs is that the global economy is experiencing a widespread retreat into nationalism and protectionism. Tariff barriers are going back up and economies are re-localising. Faced with dwindling fish stocks, we cannot simply assume that the islanders of Kiribati, Micronesia, the Solomon Islands, the Maldives and Vanuatu (the five most vulnerable fisheries) are going to carry on supplying their catch to the global market even as their children go hungry. That is a problem for developed countries like the UK where close to half (48%) of our food is imported:
“Behind the always full-looking supermarket shelves lies a supply chain that is sensitive to economic and environmental events. Too much or too little rain can reduce harvests. Emerging exotic diseases such as blue tongue and African swine fever threaten to devastate livestock industries.
“The UK is also exposed to volatile global markets that have strong impacts on supermarket prices. In this interconnected world, as market prices fluctuate it is consumers that have to pay more downstream, as they did in 2008.”
The 2008 food price spike was, perhaps, the first rumbling of a much bigger food crisis to come. As the UK Cross-government programme on food security research pointed out:
“Food price rises affect less wealthy families the hardest. The poorest 10% of UK households spent 15% of their expenditure on food in 2005-06 (after which food prices increased significantly), a figure that was just 7% for the richest 10%. This is because low-income consumers spend proportionately more on milk, eggs and bread – staples that are hard hit by food price rises.”
Disruption to global food supply chains today, when hundreds of thousands of British households already depend upon foodbanks to feed their families, could very well lead to the kind of food riots that we are used to associating with third world countries.
The continental USA is better placed to withstand the shock, since eighty percent of its food is home grown (although 70 percent of its fish is imported). Even so, climate-related disruptions to global food supply chains is going to lead to price increases, and may well lead to shortages in the big cities – something that is unlikely to go down well with the 43 million Americans who depend upon food stamps.
Factor in the potential economic impacts of climate change on global fisheries and suddenly countries like the UK and the USA – which continue to account for most of the world’s pollution (once the offshore manufacturing of imported goods is included) – no longer appear quite so invulnerable.
The other end of the “externalities” problem can be equally problematic when economics are left out of the equation. We see this in the recent row over a 2015 paper by Stanford professor Mark Jacobson. Jacobson’s paper had claimed that by 2050 (several decades too late by the way) wind, solar and hydropower alone could cost-effectively produce enough electricity and hydrogen to meet US energy needs. Understandably, the Jacobson paper was pounced upon by green energy enthusiasts who wanted to believe that our energy and climate problems had been solved. However, a new paper co-authored by 21 energy specialists has poured cold water on Jacobson’s claims:
“Such a scenario may be a useful way to explore the hypothesis that it is possible to meet the challenges associated with reliably supplying energy across all sectors almost exclusively with large quantities of a narrow range of variable energy resources. However, there is a difference between presenting such visions as thought experiments and asserting, as the authors do, that rapid and complete conversion to an almost 100% wind, solar, and hydroelectric power system is feasible with little downside. It is important to understand the distinction between physical possibility and feasibility in the real world.”
Once again, papers like Jacobson’s serve to create a false sense of security among the very people best placed to bring about change. It is worth reminding ourselves that according to the International Energy Agency, in 2014 (the last year we have data for) rounded to the nearest whole percentage, wind energy accounted for zero percent of world energy. Indeed, wind, solar, tidal and geothermal energy combined accounted for just 1.3 percent of global power. It is worth bearing that in mind next time you read a headline claiming that this or that country just generated 100% of its power from renewables. As Nick Butler at the Financial Times reminds us:
“Optimism is a great thing, but without a cold recognition of reality it is dangerous because it distracts attention from what is actually happening and what is not.”
The reality is that whatever may or may not be theoretically possible is irrelevant. What matters is what we can do today. And this points toward a very different future to the one envisaged in papers like Jacobson’s – not a future in which we simply swap renewables and batteries for coal, gas and oil, but a future in which we (by choice or necessity) see a massive fall in our consumption of resources and energy… a future that no politician would dare advocate.
The economic reality is there for anyone who chooses to look. As we reported earlier this month, our progress in developing solar PV and offshore wind, energy storage and electric vehicles pales into insignificance when we consider the key industrial and transport processes that we need to change to have any hope of keeping global warming below 2oC. To have even the slightest possibility of preventing humanity’s extinction, every country on the planet would need to engage in something akin to a Manhattan Project or a War on Climate Change and Resource Depletion. One reason why populations have yet to even begin pressurising politicians for such an effort is because all too often scientists ignore economics when they write up their reports. If they did so, they might just bring home to the populations of developed countries like the UK and the USA that it is us and our children and grandchildren who are going to suffer horrible privations and untimely deaths as a result of our failure to acknowledge the damage that our lifestyles have been doing to the planetary habitat that we depend upon.