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Goals for today
- Appreciate interdisciplinary perspectives.
- Introduce a third metaphor (the bus heading towards the cliff) to join the tragedy of the commons and the invisible hand.
- Consider the debate between pessimists (Malthusians) and optimists (Cornucopians).
- Bring Selfishness Week to a close by thinking about selfishness and sustainability.
- Watch some economics comedy.
Trade can make everyone worse off
Orange, Pink, and Blue live in a small town with an air pollution problem. They also each have a garage full of gadgets they currently don’t use.
Trade can make everyone worse off
1.Orange sells a lawnmower to Pink.
Trade can make everyone worse off
- 80 +100 - 80 +100 - 80
1.Orange sells a lawnmower to Pink. 2.Pink sells a snowblower to Blue.
Trade can make everyone worse off
- 80 +100 - 80 +100 - 80
+100 - 80 - 80 +100 -^^80
1.Orange sells a lawnmower to Pink. 2.Pink sells a snowblower to Blue.
3.Blue sells a leafblower to Orange.
2
Trade can make everyone worse off
Each person’s trades are individually rational, but all the trades together hurt everyone!
Connection to climate change?
China EU/Japan USA
The author of “Plenty of Gloom” was…
1 2 3 4
57%
3%
8%
31%
1. An optimist about
the fate of the
world
2. A pessimist
3. Neither
4. Hard to say, the
article was too
subtle and
nuanced.
Who won the Simon/Ehrlich bet?
Simon (the economist ...Ehrlich (the ecologist ...
21%
1. Simon (the 79%
economist /
optimist)
2. Ehrlich (the
ecologist /
pessimist)
“Plenty of gloom” said that which
environmental problem wasn’t exaggerated?
Global warming.DDT and pesticides. CFCs and the ozone hole.
Overpopulation.Deforestation.
10%
49%
16% 8%
17%
1. Global warming.
2. DDT and
pesticides.
3. CFCs and the
ozone hole.
4. Overpopulation.
5. Deforestation.
What question is at the heart of Solow’s
“sustainability paradox”?
1 2 3
40%
3%
1. How can self- 58%
interest lead to
sustainability?
2. What about poor
people today?
3. Won’t people in
the future be
much wealthier?
“What would a society motivated by individual greed and controlled by a very large number of different agents look like? There would be chaos.”
Strongly Agree
AgreeNeutralDisagree Strongly Disagree
15%
45%
4%
26%
10%
1. Strongly Agree
2. Agree
3. Neutral
4. Disagree
5. Strongly Disagree
The optimists/Cornucopians
“This is my long-run forecast in brief: The material conditions of life will continue to get better for most people, in most countries, most of the time, indefinitely. Within a century or two, all nations and most of humanity will be at or above today's Western living standards.” -- Julian Simon, quoted in Lomborg’s Skeptical Environmentalist, p. vi.
Optimists vs. pessimists
- I’m not going to tell you who’s right and who’s wrong, but I’ll give you a hint.
- The pessimists are wrong.
- “Nothing could be more misleading to our children than our present affluent society…” --Paul Ehrlich, The Population Bomb ( 1968 )
- Look at nonrenewable resource consumption.
- The optimists are wrong too.
- Look at global warming or the ozone hole.
Are we running out of
nonrenewable resources?
Meadows et al., The Limits to Growth, 2nd^ ed. (1974): “Given present resource consumption rates and the projected increase in these rates, the great majority of the currently important nonrenewable resources will be extremely costly 100 years from now… The prices of [some resources] have already begun to increase. The price of mercury, for example, has gone up 500 percent in the last 20 years; the price of lead has increased 300 percent in the last 30 years…”
Are we running out of
nonrenewable resources?
- Simon, The Ultimate Resource (1981): “This is a public offer to stake $10,000… on my belief that mineral resources (or food or other commodities) will not rise in price…”
- Paul Ehrlich decided to “accept Simon’s astonishing offer before other greedy people jump in.”
- In October 1980, he bet $1000 that the inflation- adjusted price of five metals (chrome, copper, nickel, tin, tungsten) would rise by October 1990.
Copper (1950=100% )
0%
100%
200%
300%
400%
500%
600%
700%
19501954195819621966197019741978198219861990199419982002
Inflation-adjusted price World production
Source: USGS, http://minerals.usgs.gov/ds/2005/140/
Are we running out of
nonrenewable resources?
- Ehrlich lost the bet, and sent Simon a check for $576.07, noting that “Julian Simon is like the guy who jumps off the Empire State Building and says how great things are going so far as he passes the 10 th^ floor” (Tierney 1990).
- “Simon wrote back a thank-you note, adding that he would be willing to raise the wager to as much as $20,000, pinned to any other resources and to any other year in the future.” (Tierney)
- Ehrlich refused to take this new bet.
Where did Ehrlich go wrong?
- My theory: He failed to respect the social sciences and their practitioners, who argue that private property rights and market prices often do a good job of aligning private (individual) incentives with social (group) goals.
- “Well-functioning markets” create private incentives for exploration, for substitution, even for conservation!
- This is the invisible hand idea.
Selfish individuals often act (“as if led by an
invisible hand”) in socially valuable ways.
- Why will selfish individuals explore to find new sources of natural resources?
- Why will selfish individuals work hard to find substitutes for natural resources?
- Why will selfish individuals work hard to conserve natural resources?
- There is a profit motive if you can save money or make money by conserving, or by saving a resource for later use.
The Nano car (made by Tata
Motors of India)
- Costs just $2,500!
- No radio, no sun visors, one wiper blade
Optimists vs. pessimists
- I’m not going to tell you who’s right and who’s wrong, but I’ll give you a hint.
- The pessimists are wrong.
- The optimists are wrong too.
- Look at global warming or the ozone hole.
The ozone hole
“The ozone layer and its ‘hole’ over Antarctica certainly deserve study. But this is very different than recommending action. The best principle might be: ‘Don't do something. Stand there.’
…[I]t is important that the government not attempt to fix what is not broken.”
--Julian L. Simon (1996)
Global warming
“[M]y guess is that global warming will simply be another transient concern, barely worthy of consideration ten years from now… --Julian L. Simon (1996)
