“Harder-working” countries are not richer

July 28 JDN 2458693

American culture is obsessed with work. We define ourselves by our professions. We are one of only a handful of countries in the world that don’t guarantee vacations for their workers. Over 50 million Americans suffer from chronic sleep deprivation, mostly due to work. Then again, we are also an extremely rich country; perhaps our obsession with work is what made us so rich?

Well… not really. Take a look at this graph, which I compiled from OECD data:

 

Worker_productivity

The X-axis shows the average number of hours per worker per year. I think this is the best measure of a country’s “work obsession”, as it includes both length of work week, proportion of full-time work, and amount of vacation time. The At 1,786 hours per worker per year, the US is not actually the highest: That title goes to Mexico, at an astonishing 2,148 hours per worker per year. The lowest is Germany at only 1,363 hours per worker per year. Converted into standard 40-hour work weeks, this means that on average Americans work 44 weeks per year, Germans work on average 34 weeks per year, and Mexicans work 54 weeks per year—that is, they work more than full-time every week of the year.

The Y-axis shows GDP per worker per year. I calculated this by multiplying GDP per work hour (a standard measure of labor productivity) by average number of work hours per worker per year. At first glance, these figures may seem too large; for instance they are $114,000 in the US and $154,000 in Ireland. But keep in mind that this is per worker, not per person; the usual GDP per capita figure divides by everyone in the population, while this is only dividing by the number of people who are actively working. Unemployed people are not included, and neither are children or retired people.

There is an obvious negative trend line here. While Ireland is an outlier with exceptionally high labor productivity, the general pattern is clear: the countries with the most GDP per worker actually work the fewest hours. Once again #ScandinaviaIsBetter: Norway and Denmark are near the bottom for work hours and near the top for GDP per worker. The countries that work the most hours, like Mexico and Costa Rica, have the lowest GDP per worker.

This is actually quite remarkable. We would expect that productivity per hour decreases as work hours increase; that’s not surprising at all. But productivity per worker decreasing means that these extra hours are actually resulting in less total output. We are so overworked, overstressed, and underslept that we actually produce less than our counterparts in Germany or Denmark who spend less time working.

Where we would expect the graph of output as a function of hours to look like the blue line below, it actually looks more like the orange line:

Labor_output

Rather than merely increasing at a decreasing rate, output per worker actually decreases as we put in more hours—and does so over most of the range in which countries actually work. It wouldn’t be so surprising if this sort of effect occurred above say 2000 hours per year, when you start running out of time to do anything else; but in fact it seems to be happening somewhere around 1400 hours per year, which is less than most countries work.

Only a handful of countries—mostly Scandinavian—actually seem to be working the right amount; everyone else is working too much and producing less as a result.

And note that this is not restricted to white-collar or creative jobs where we would expect sleep deprivation and stress to have a particularly high impact. This includes all jobs. Our obsession with work is actually making us poorer!

How much wealth is there in the world?

July 14 JDN 2458679

How much wealth is there in the world? If we split it all evenly, how much would each of us have?

It’s a surprisingly complicated question: What counts as wealth? Presumably we include financial assets, real estate, commodities—anything that can be sold on a market. But what about natural resources? Shouldn’t we somehow value clean air and water? What about human capital—health, knowledge, skills, and expertise that make us able to work better?

I’m going to stick with tradeable assets for now, because I’m interested in questions of redistribution. If we were to add up all the wealth in the United States, or all the wealth in the world, and split it all evenly, how much would each person get? Even then, there are questions about how to price assets: Do we current market prices, or what was actually paid for them in the past? How much do we depreciate? How do we count debt that was used to buy non-financial assets (such as student loans)?

The Federal Reserve reports an official estimate of the US capital stock at $56.2 trillion (in 2011 dollars). Assuming that a third of income is capital income, that means that of our GDP of $18.9 trillion (in 2012 dollars), this would make the rate of return on capital 11%. That rate of return strikes me as pretty clearly too high. This must be an underestimate of our capital stock.

The 2015 Global Wealth Report estimates total US wealth as $63.5 trillion, and total world wealth as $153.2 trillion. This was for 2014, so using the US GDP growth rate of about 2% and the world GDP growth rate of 3.6%, the current wealth stocks should be about $70 trillion and $183 trillion respectively.

This gives a much more plausible rate of return: One third of the US GDP of $19.6 trillion (in 2014 dollars) is $6.53 trillion, yielding a rate of return of about 9%.

One third of the world GDP of $78 trillion is $26 trillion, yielding a rate of return of about 14%. This seems a bit high, but we’re including a lot of countries with very little capital that we would expect to have very high rates of return, so it might be right.

Credit Suisse releases estimates of total wealth that are supposed to include non-financial assets as well, though these are even more uncertain than financial assets. They estimate total US wealth as $98 trillion and total world wealth as $318 trillion.

There’s a lot of uncertainty around all of these figures, but I think these are close enough to get a sense of what sort of redistribution might be possible.

If the US wealth stock is about $70 trillion and our population is about 330 million, that means that the average wealth of an American is $200,000. If our wealth stock is instead about $98 trillion, the average wealth of an American is about $300,000.

Since the average number of people in a US household is 2.5, this means that average household wealth is somewhere between $500,000 and $750,000. This is actually a bit less than I thought; I would have guessed that the mythical “average American household” is a millionaire. (Of course, even Credit Suisse might be underestimating our wealth stock.)

If the world wealth stock is about $180 trillion and the population is about 7.7 billion, global average wealth per person is about $23,000. If instead the global wealth stock is about $320 trillion, the average wealth of a human being is about $42,000.

Both of these are far above the median wealth, which is much more representative of what a typical person has. Median wealth per adult in the US is about $65,000; worldwide it’s only about $4,200.

This means that if we were to somehow redistribute all wealth in the United States, half the population would gain an average of somewhere between $140,000 and $260,000, or on a percentage basis, the median American would see their wealth increase by 215% to 400%. If we were to instead somehow redistribute all wealth in the world, half the population would gain an average of $19,000 to $38,000; the median individual would see their wealth increase by 450% to 900%.

Of course, we can’t literally redistribute all the wealth in the world. Even if we could somehow organize it logistically—a tall order to be sure—such a program would introduce all sorts of inefficiencies and perverse incentives. That would really be socialism: We would be allocating wealth entirely based on a government policy and not at all by the market.

But suppose instead we decided to redistribute some portion of all this wealth. How about 10%? That seems like a small enough amount to avoid really catastrophic damage to the economy. Yes, there would be some inefficiencies introduced, but this could be done with some form of wealth taxes that wouldn’t require completely upending capitalism.

Suppose we did this just within the US. 10% of US wealth, redistributed among the whole population, would increase median wealth by between $20,000 and $30,000, or between 30% and 45%. That’s already a pretty big deal. And this is definitely feasible; the taxation infrastructure is all already in place. We could essentially buy the poorest half of the population a new car on the dime of the top half.

If instead we tried to do this worldwide, we would need to build the fiscal capacity first; the infrastructure to tax wealth effectively is not in place in most countries. But supposing we could do that, we could increase median wealth worldwide by between $2,000 and $4,000, or between 50% and 100%. Of course, this would mean that many of us in the US would lose a similar amount; but I think it’s still quite remarkable that we could as much as double the wealth of most of the world’s population by redistributing only 10% of the total wealth. That’s how much wealth inequality there is in the world.

A tale of two storms

Sep 24, JDN 2458021

There were two severe storm events this past week; one you probably heard a great deal about, the other, probably not. The first was Hurricane Irma, which hit the United States and did most of its damage in Florida; the second was Typhoon Doksuri, which hit Southeast Asia and did most of its damage in Vietnam.

You might expect that this post is going to give you more bad news. Well, I have a surprise for you: The news is actually mostly good.

The death tolls from both storms were astonishingly small. The hurricane is estimated to have killed at least 84 people, while the typhoon has killed at least 26. This result is nothing less than heroism. The valiant efforts of thousands of meteorologists and emergency responders around the world has saved thousands of lives, and did so both in the wealthy United States and in impoverished Vietnam.

When I started this post, I had expected to see that the emergency response in Vietnam would be much worse, and fatalities would be far higher; I am delighted to report that nothing of the sort was the case, and Vietnam, despite their per-capita GDP PPP of under $6,000, has made emergency response a sufficiently high priority that they saved their people just about as well as Florida did.

To get a sense of what might have happened without them, consider that 1.5 million homes in Florida were leveled by the hurricane, and over 100,000 homes were damaged by the typhoon. Vietnam is a country of 94 million people. Florida has a population of 20 million. (The reason Florida determines so many elections is that it is by far the most populous swing state.) Without weather forecasting and emergency response, these death figures would have been in the tens of thousands, not the dozens.

Indeed, if you know statistics and demographics well, these figures become even more astonishing: These death rates were almost indistinguishable from statistical noise.

Vietnam’s baseline death rate is about 5.9 per 1,000, meaning that they experience about 560,000 deaths in any given year. This means that over 1500 people die in Vietnam on a normal day.

Florida’s baseline death rate is about 6.6 per 1,000, actually a bit higher than Vietnam’s, because Florida’s population skews so much toward the elderly. Therefore Florida experiences about 130,000 deaths per year, or 360 deaths on a normal day.

In both Vietnam and Florida, this makes the daily death probability for any given person about 0.0017%. A random process with a fixed probability of 0.0017% over a population of n people will result in an average of 0.0017n events, but with some variation around that number. The standard deviation is actually sqrt(p(1-p)n) = 0.004 sqrt(n). When n = 20,000,000 (Florida), this results in a standard deviation of 18. When n = 94,000,000 (Vietnam), this results in a standard deviation of 40.

This means that the 26 additional deaths in Vietnam were within one standard deviation of average! They basically are indistinguishable from statistical noise. There have been over a hundred days in Vietnam where an extra 26 people happened to die, just in the past year. Weather forecasting took what could have been a historic disaster and turned it into just another bad day.

The 84 additional deaths in Florida are over four standard deviations away from average, so they are definitely distinguishable from statistical noise—but this still means that Florida’s total death rate for the year will only tick up by 0.6%.

It is common in such tragedies to point out in grave tones that “one death is too many”, but I maintain that this is not actually moral wisdom but empty platitude. No conceivable policy is ever going to reduce death rates to zero, and the people who died of heart attacks or brain aneurysms are every bit as dead as the people who died from hurricanes or terrorist attacks. Instead of focusing on the handful of people who died because they didn’t heed warnings or simply got extraordinarily unlucky, I think we should be focusing on the thousands of people who survived because our weather forecasters and emergency responders did their jobs so exceptionally well. Of course if we can reduce the numbers even further, we should; but from where I’m sitting, our emergency response system has a lot to be proud of.

Of course, the economic damage of the storms was substantially greater. The losses in destroyed housing and infrastructure in Florida are projected at over $80 billion. Vietnam is much poorer, so there simply isn’t as much infrastructure to destroy; total damage is unlikely to exceed $10 billion. Florida’s GDP is $926 billion, so they are losing 8.6%; while Vietnam’s GDP is $220 billion, so they are still losing 4.5%. And of course the damage isn’t evenly spread across everyone; those hardest hit will lose perhaps their entire net wealth, while others will feel absolutely nothing.

But economic damage is fleeting. Indeed, if we spend the government money we should be, and take the opportunity to rebuild this infrastructure better than it was before, the long-run economic impact could be positive. Even 8.6% of GDP is less than five years of normal economic growth—and there were years in the 1950s where we did it in a single year. The 4.6% that Vietnam lost, they should make back within a year of their current economic growth.

Thank goodness.

Will China’s growth continue forever?

July 23, JDN 2457958

It’s easy to make the figures sound alarming, especially if you are a xenophobic American:

Annual GDP growth in the US is currently 2.1%, while annual GDP growth in China is 6.9%. At markte exchange rates, US GDP is currently $18.6 trillion, while China’s GDP is $11.2 trillion. If these growth rates continue, that means that China’s GDP will surpass ours in just 12 years.

Looking instead at per-capita GDP (and now using purchasing-power-parity, which is a much better measure for standard of living), the US is currently at $53,200 per person per year while China is at $14,400 per person per year. Since 2010 US per-capita GDP PPP has been growing at about 1.2%, while China’s has been growing at 7.1%. At that rate, China will surpass the US in standard of living in only 24 years.

And then if you really want to get scared, you start thinking about what happens if this growth continues for 20, or 30, or 50 years. At 50 years of these growth rates, US GDP will just about triple; but China’s GDP would increase by almost a factor of thirty. US per-capita GDP will increase to about $150,000, while China’s per-capita GDP will increase all the way to $444,000.

But while China probably will surpass the US in total nominal GDP within say 15 years, the longer-horizon predictions are totally unfounded. In fact, there is reason to believe that China will never surpass the US in standard of living, at least within the foreseeable future. Sure, some sort of global catastrophe could realign the world’s fortunes (climate change being a plausible candidate) and over very long time horizons all sorts of things can happen; but barring catastrophe and looking within the next few generations, there’s little reason to think that the average person in China will actually be better off than the average person in the United States. Indeed, while that $150,000 figure is actually remarkably plausible, that $444,000 figure is totally nonsensical. I project that in 2065, per-capita GDP in the US will indeed be about $150,000, but per-capita GDP in China will be more like $100,000.

That’s still a dramatic improvement over today for both countries, and something worth celebrating; but the panic that the US must be doing something wrong and China must be doing something right, that China is “eating our lunch” in Trump’s terminology, is simply unfounded.

Why am I so confident of this? Because, for all the proud proclamations of Chinese officials and panicked reports of American pundits, China’s rapid growth rates are not unprecedented. We have seen this before.

Look at South Korea. As I like to say, the discipline of development economics is basically the attempt to determine what happened in South Korea 1950-2000 and how to make it happen everywhere.

In 1960, South Korea’s nominal per-capita GDP was only $944. In 2016, it was $25,500. That takes them from solidly Third World underdeveloped status into very nearly First World highly-developed status in just two generations. This was an average rate of growth of 6.0%. But South Korea didn’t grow steadily at 6.0% for that entire period. Their growth fluctuated wildly (small countries tend to do that; they are effectively undiversified assets), but also overall trended downward.

The highest annual growth rate in South Korea over that time period was an astonishing 20.8%. Over twenty percent per year. Now that is growth you would feel. Imagine going from an income of $10,000 to an income of $12,000, in just one year. Imagine your entire country doing this. In its best years, South Korea was achieving annual growth rates in income comparable to the astronomical investment returns of none other than Warren Buffett (For once, we definitely had r < g). Even if you smooth out over the boom-and-bust volatility South Korea went through during that period, they were still averaging growth rates over 7.5% in the 1970s.

I wasn’t alive then, but I wouldn’t be surprised if Americans back then were panicking about South Korea’s growth too. Maybe not, since South Korea was and remains a close US ally, and their success displayed the superiority of capitalism over Communism (boy did it ever: North Korea’s per capita GDP also started at about $900 in 1960, and is still today… only about $1000!); but you could have made the same pie-in-the-sky forecasts of Korea taking over the world if you’d extrapolated their growth rates forward.

South Korea’s current growth rate, on the other hand? 2.9%. Not so shocking now!

Moreover, this is a process we understand theoretically as well as empirically. The Solow model is now well-established as the mainstream neoclassical model of economic growth, and it directly and explicitly predicts this sort of growth pattern, where a country that starts very poor will initially grow extremely fast as they build a capital base and reverse-engineer technology from more advanced countries, but then over a couple of generations their growth will slow down and eventually level off once they reach a high level of economic development.

Indeed, the basic reason is quite simple: A given proportional growth is easier to do when you start small. (There’s more to it than that, involving capital degradation and diminishing marginal returns, but at its core, that’s the basic idea.)

I think I can best instill this realization in you by making another comparison between the US and China: How much income are we adding in absolute terms?

US per-capita GDP of $53,200 is growing at 1.2% per year; that means we’re adding $640 per person per year. China per-capita GDP of $14,400 is growing at 7.1% per year; that means they’re adding $1,020 per year. So while it sounds like they are growing almost six times faster, they’re actually only adding about 40% more real income per person each year than we are. It’s just a larger proportion to them.

Indeed, China is actually doing relatively well on this scale. Many developing countries that are growing “fast” are actually adding less income per person in absolute terms than many highly-developed countries. India’s per capita GDP is growing at 5.8% per year, but adding only $340 per person per year. Ethiopia’s income per person is growing by 4.9%—which is only $75 per person per year. Compare this to the “slow” growth of the UK, where 1.0% annual growth is still $392 per person per year, or France, where “stagnant” growth of 0.8% is still $293 per person per year.

Back when South Korea was growing at 20%, that was still on the order of $200 per person per year. Their current 2.9%, on the other hand, is actually $740 per person per year. We often forget just how poor many poor countries truly are; what sounds like a spectacular growth rate still may not be all that much in absolute terms.

Here’s a graph (on a log scale) of GDP per capita in the US, Japan, China, and Korea, from World Bank data since 1960. I’d prefer to use GDP PPP, but the World Bank data doesn’t go back far enough.

As you can see, there is a general pattern of growth at a decreasing rate; it’s harder to see in China because they are earlier in the process; but there’s good reason to think that they will follow the same pattern.

If anything, I think the panic about Japan in the 1990s may have been more justifiable (not that it was terribly justified either). As you can see on the graph, in terms of nominal GDP per capita, Japan actually did briefly surpass the United States in the 1990s. Of course, the outcome of that was not a global war or Japan ruling the world or something; it was… the Nintendo Wii and the Toyota Prius.

Of course, that doesn’t stop people from writing news articles and even publishing economic papers about how this time is different, not like all the other times we saw the exact same pattern. Many Chinese officials appear to believe that China is special, that they can continue to grow at extremely high rates indefinitely without the constraints that other countries would face. But for once economic theory and economic data are actually in very good agreement: These high growth rates will not last forever. They will slow down, and that’s not such a bad thing. By the time they do, China will have greatly raised their standard of living to something very close to our own. Hundreds of millions of people have already been lifted out of abject poverty; continued growth could benefit hundreds of millions more.

The far bigger problem would be if the government refuses to accept that growth must slow down, and begins trying to force impossible levels of growth or altering the economic data to make it appear as though growth has occurred that hasn’t. We already know that the People’s Republic of China has a track record of doing this sort of thing: we know they have manipulated some data, though we think only in small ways, and the worst example of an attempt at forcing economic growth in human history was in China, the so-called “Great Leap Forward” that killed 20 million people. The danger is not that China will grow this fast forever, nor that they will slow down soon enough, but that they will slow down and their government will refuse to admit it.

Should we give up on growth?

JDN 2457572

Recently I read this article published by the Post Carbon Institute, “How to Shrink the Economy without Crashing It”, which has been going around environmentalist circles. (I posted on Facebook that I’d answer it in more detail, so here goes.)

This is the far left view on climate change, which is wrong, but not nearly as wrong as even the “mainstream” right-wing view that climate change is not a serious problem and we should continue with business as usual. Most of the Republicans who ran for President this year didn’t believe in using government action to fight climate change, and Donald Trump doesn’t even believe it exists.
This core message of the article is clearly correct:

We know this because Global Footprint Network, which methodically tracks the relevant data, informs us that humanity is now using 1.5 Earths’ worth of resources.

We can temporarily use resources faster than Earth regenerates them only by borrowing from the future productivity of the planet, leaving less for our descendants. But we cannot do this for long.

To be clear, “using 1.5 Earths” is not as bad as it sounds; spending is allow to exceed income at times, as long as you have reason to think that future income will exceed future spending, and this is true not just of money but also of natural resources. You can in fact “borrow from the future”, provided you do actually have a plan to pay it back. And indeed there has been some theoretical work by environmental economists suggesting that we are rightly still in the phase of net ecological dissaving, and won’t enter the phase of net ecological saving until the mid-21st century when our technology has made us two or three times as productive. This optimal path is defined by a “weak sustainability” condition where total real wealth never falls over time, so any natural wealth depleted is replaced by at least as much artificial wealth.

Of course some things can’t be paid back; while forests depleted can be replanted, if you drive species to extinction, only very advanced technology could restore them. And we are driving thousands of species to extinction every single year. Even if we should be optimally dissaving, we are almost certainly depleting natural resources too fast, and depleting natural resources that will be difficult if not impossible to later restore. In that sense, the Post Carbon Institute is right: We must change course toward ecological sustainability.

Unfortunately, their specific ideas of how to do so leave much to be desired. Beyond ecological sustainability, they really argue for two propositions: one is radical but worth discussing, but the other is totally absurd.

The absurd claim is that we should somehow force the world to de-urbanize and regress into living in small farming villages. To show this is a bananaman and not a strawman, I quote:

8. Re-localize. One of the difficulties in the transition to renewable energy is that liquid fuels are hard to substitute. Oil drives nearly all transportation currently, and it is highly unlikely that alternative fuels will enable anything like current levels of mobility (electric airliners and cargo ships are non-starters; massive production of biofuels is a mere fantasy). That means communities will be obtaining fewer provisions from far-off places. Of course trade will continue in some form: even hunter-gatherers trade. Re-localization will merely reverse the recent globalizing trade trend until most necessities are once again produced close by, so that we—like our ancestors only a century ago—are once again acquainted with the people who make our shoes and grow our food.

9. Re-ruralize. Urbanization was the dominant demographic trend of the 20th century, but it cannot be sustained. Indeed, without cheap transport and abundant energy, megacities will become increasingly dysfunctional. Meanwhile, we’ll need lots more farmers. Solution: dedicate more societal resources to towns and villages, make land available to young farmers, and work to revitalize rural culture.

First of all: Are electric cargo ships non-starters? The Ford-class aircraft carrier is electric, specifically nuclear. Nuclear-powered cargo ships would raise a number of issues in terms of practicality, safety, and regulation, but they aren’t fundamentally infeasible. Massive efficient production of biofuels is a fantasy as long as the energy to do it is provided by coal power, but not if it’s provided by nuclear. Perhaps this author’s concept of “infeasible” really just means “infeasible if I can’t get over my irrational fear of nuclear power”. Even electric airliners are not necessarily out of the question; NASA has been experimenting with electric aircraft.

The most charitable reading I can give of this (in my terminology of argument “men”, I’m trying to make a banana out of iron), is as promoting slightly deurbanizing and going back to more like say the 1950s United States, with 64% of people in cities instead of 80% today. Even then this makes less than no sense, as higher urbanization is associated with lower per-capita ecological impact, which frankly shouldn’t even be surprising because cities have such huge economies of scale. Instead of everyone needing a car to get around in the suburbs, we can all share a subway system in the city. If that subway system is powered by a grid of nuclear, solar, and wind power, it could produce essentially zero carbon emissions—which is absolutely impossible for rural or suburban transportation. Urbanization is also associated with slower population growth (or even population decline), and indeed the reason population growth is declining is that rising standard of living and greater urbanization have reduced birth rates and will continue to do so as poor countries reach higher levels of development. Far from being a solution to ecological unsustainability, deurbanization would make it worse.

And that’s not even getting into the fact that you would have to force urban white-collar workers to become farmers, because if we wanted to be farmers we already would be (the converse is not as true), and now you’re actually talking about some kind of massive forced labor-shift policy like the Great Leap Forward. Normally I’m annoyed when people accuse environmentalists of being totalitarian communists, but in this case, I think the accusation might be onto something.

Moving on, the radical but not absurd claim is that we must turn away from economic growth and even turn toward economic shrinkage:

One way or another, the economy (and here we are talking mostly about the economies of industrial nations) must shrink until it subsists on what Earth can provide long-term.

[…]

If nothing is done deliberately to reverse growth or pre-adapt to inevitable economic stagnation and contraction, the likely result will be an episodic, protracted, and chaotic process of collapse continuing for many decades or perhaps centuries, with innumerable human and non-human casualties.

I still don’t think this is right, but I understand where it’s coming from, and like I said it’s worth talking about.

The biggest mistake here lies in assuming that GDP is directly correlated to natural resource depletion, so that the only way to reduce natural resource depletion is to reduce GDP. This is not even remotely true; indeed, countries vary almost as much in their GDP-per-carbon-emission ratio as they do in their per-capita GDP. As usual, #ScandinaviaIsBetter; Norway and Sweden produce about $8,000 in GDP per ton of carbon, while the US produces only about $2,000 per ton. Both poor and rich countries can be found among both the inefficient and the efficient. Saudi Arabia is very rich and produces about $900 per ton, while Liberia is exceedingly poor and produces about $800 per ton. I already mentioned how Norway produces $8,000 per ton, and they are as rich as Saudi Arabia. Yet above them is Mali, which produces almost $11,000 per ton, and is as poor as Liberia. Other notable facts: France is head and shoulders above the UK and Germany at almost $6000 per ton instead of $4300 and $3600 respectively—because France runs almost entirely on nuclear power.

So the real conclusion to draw from this is not that we need to shrink GDP, but that we need to make GDP more like how they do it in Norway or at least how they do it in France, rather than how we do in the US, and definitely not how they do it in Saudi Arabia. Total world emissions are currently about 36 billion tons per year, producing about $108 trillion in GDP, averaging about $3,000 of GDP per ton of carbon emissions. If we could raise the entire world to the ecological efficiency of Norway, we could double world GDP and still be producing less CO2 than we currently are. Turning the entire planet into a bunch of Norways would indeed raise CO2 output, by about a factor of 2; but it would raise standard of living by a factor of 5, and indeed bring about a utopian future with neither war nor hunger. Compare this to the prospect of cutting world GDP in half, but producing it as inefficiently as in Saudi Arabia: This would actually increase global CO2 emissions, almost as much as turning every country into Norway.

But ultimately we will in fact need to slow down or even end economic growth. I ran a little model for you, which shows a reasonable trajectory for global economic growth.

This graph shows the growth rate in productivity slowly declining, along with a much more rapidly declining GDP growth:

Solow_growth

This graph shows the growth trajectory for total real capital and GDP:

Solow_capital

And finally, this is the long-run trend for GDP graphed on a log scale:

Solow_logGDP

The units are arbitrary, though it’s not unreasonable to imagine them as being years and hundreds of dollars in per-capita GDP. If that is indeed what you imagine them to be, my model shows us the Star Trek future: In about 300 years, we rise from a per-capita GDP of $10,000 to one of $165,000—from a world much like today to a world where everyone is a millionaire.

Notice that the growth rate slows down a great deal fairly quickly; by the end of 100 years (i.e., the end of the 21st century), growth has slowed from its peak over 10% to just over 2% per year. By the end of the 300-year period, the growth rate is a crawl of only 0.1%.

Of course this model is very simplistic, but I chose it for a very specific reason: This is not a radical left-wing environmentalist model involving “limits to growth” or “degrowth”. This is the Solow-Swan model, the paradigm example of neoclassical models of economic growth. It is sometimes in fact called simply “the neoclassical growth model”, because it is that influential. I made one very small change from the usual form, which was to assume that the rate of productivity growth would decline exponentially over time. Since productivity growth is exogenous to the model, this is a very simple change to make; it amounts to saying that productivity-enhancing technology is subject to diminishing returns, which fits recent data fairly well but could be totally wrong if something like artificial intelligence or neural enhancement ever takes off.

I chose this because many environmentalists seem to think that economists have this delusional belief that we can maintain a rate of economic growth equal to today indefinitely. David Attenborough famously said “Anyone who believes in indefinite growth in anything physical, on a physically finite planet, is either mad – or an economist.”

Another physicist argued that if we increase energy consumption 2.3% per year for 400 years, we’d literally boil the Earth. Yes, we would, and no economist I know of believes that this is what will happen. Economic growth doesn’t require energy growth, and we do not think growth can or should continue indefinitely—we just think it can and should continue a little while longer. We don’t think that a world standard of living 1000 times as good as Norway is going to happen; we think that a world standard of living equal to Norway is worth fighting for.

Indeed, we are often the ones trying to explain to leaders that they need to adapt to slower growth rates—this is particularly a problem in China, where nationalism and groupthink seems to have convinced many people in China that 7% annual growth is the result of some brilliant unique feature of the great Chinese system, when it is in fact simply the expected high growth rate for an economy that is very poor and still catching up by establishing a capital base. (It’s not so much what they are doing right now, as what they were doing wrong before. Just as you feel a lot better when you stop hitting yourself in the head, countries tend to grow quite fast after they transition out of horrifically terrible economic policy—and it doesn’t get much more terrible than Mao.) Even a lot of the IMF projections are now believed to be too optimistic, because they didn’t account for how China was fudging the numbers and rapidly depleting natural resources.

Some of the specific policies recommended in the article are reasonable, while others go to far.

1. Energy: cap, reduce, and ration it. Energy is what makes the economy go, and expanded energy consumption is what makes it grow. Climate scientists advocate capping and reducing carbon emissions to prevent planetary disaster, and cutting carbon emissions inevitably entails reducing energy from fossil fuels. However, if we aim to shrink the size of the economy, we should restrain not just fossil energy, but all energy consumption. The fairest way to do that would probably be with tradable energy quotas.

I strongly support cap-and-trade on fossil fuels, but I can’t support it on energy in general, unless we get so advanced that we’re seriously concerned about significantly altering the entropy of the universe. Solar power does not have negative externalities, and therefore should not be taxed or capped.

The shift to renewable energy sources is a no-brainer, and I know of no ecologist and few economists who would disagree.

This one is rich, coming from someone who goes on to argue for nonsensical deurbanization:

However, this is a complicated process. It will not be possible merely to unplug coal power plants, plug in solar panels, and continue with business as usual: we have built our immense modern industrial infrastructure of cities, suburbs, highways, airports, and factories to take advantage of the unique qualities and characteristics of fossil fuels.

How will we make our industrial infrastructure run off a solar grid? Urbanization. When everything is in one place, you can use public transportation and plug everything into the grid. We could replace the interstate highway system with a network of maglev lines, provided that almost everyone lived in major cities that were along those lines. We can’t do that if people move out of cities and go back to being farmers.

Here’s another weird one:

Without continued economic growth, the market economy probably can’t function long. This suggests we should run the transformational process in reverse by decommodifying land, labor, and money.

“Decommodifying money”? That’s like skinning leather or dehydrating water. The whole point of money is that it is a maximally fungible commodity. I support the idea of a land tax to provide a basic income, which could go a long way to decommodifying land and labor; but you can’t decommodify money.

The next one starts off sounding ridiculous, but then gets more reasonable:

4. Get rid of debt. Decommodifying money means letting it revert to its function as an inert medium of exchange and store of value, and reducing or eliminating the expectation that money should reproduce more of itself. This ultimately means doing away with interest and the trading or manipulation of currencies. Make investing a community-mediated process of directing capital toward projects that are of unquestioned collective benefit. The first step: cancel existing debt. Then ban derivatives, and tax and tightly regulate the buying and selling of financial instruments of all kinds.

No, we’re not going to get rid of debt. But should we regulate it more? Absolutely. A ban on derivatives is strong, but shouldn’t be out of the question; it’s not clear that even the most useful derivatives (like interest rate swaps and stock options) bring more benefit than they cause harm.

The next proposal, to reform our monetary system so that it is no longer based on debt, is one I broadly agree with, though you need to be clear about how you plan to do that. Positive Money’s plan to make central banks democratically accountable, establish full-reserve banking, and print money without trying to hide it in arcane accounting mechanisms sounds pretty good to me. Going back to the gold standard or something would be a terrible idea. The article links to a couple of “alternative money theorists”, but doesn’t explain further.

Sooner or later, we absolutely will need to restructure our macroeconomic policy so that 4% or even 2% real growth is no longer the expectation in First World countries. We will need to ensure that constant growth isn’t necessary to maintain stability and full employment.

But I believe we can do that, and in any case we do not want to stop global growth just yet—far from it. We are now on the verge of ending world hunger, and if we manage to do it, it will be from economic growth above all else.

Actually, our economic growth has been fairly ecologically sustainable lately!

JDN 2457538

Environmentalists have a reputation for being pessimists, and it is not entirely undeserved. While as Paul Samuelson said, all Street indexes have predicted nine out of the last five recessions, environmentalists have predicted more like twenty out of the last zero ecological collapses.

Some fairly serious scientists have endorsed predictions of imminent collapse that haven’t panned out, and many continue to do so. This Guardian article should be hilarious to statisticians, as it literally takes trends that are going one direction, maps them onto a theory that arbitrarily decides they’ll suddenly reverse, and then says “the theory fits the data”. This should be taught in statistics courses as a lesson in how not to fit models. More data distortion occurs in this Scientific American article, which contains the phrase “food per capita is decreasing”; well, that’s true if you just look at the last couple of years, but according to FAOSTAT, food production per capita in 2012 (the most recent data in FAOSTAT) was higher than literally every other year on record except 2011. So if you allow for even the slightest amount of random fluctuation, it’s very clear that food per capita is increasing, not decreasing.

global_food.png

So many people predicting imminent collapse of human civilization. And yet, for some reason, all the people predicting this go about their lives as if it weren’t happening! Why, it’s almost as if they don’t really believe it, and just say it to get attention. Nobody gets on the news by saying “Civilization is doing fine; things are mostly getting better.”

There’s a long history of these sorts of gloom and doom predictions; perhaps the paradigm example is Thomas Malthus in 1779 predicting the imminent destruction of civilization by inevitable famine—just in time for global infant mortality rates to start plummeting and economic output to surge beyond anyone’s wildest dreams.

Still, when I sat down to study this it was remarkable to me just how good the outlook is for future sustainability. The Index of Sustainable Economic Welfare was created essentially in an attempt to show how our economic growth is largely an illusion driven by our rapacious natural resource consumption, but it has since been discontinued, perhaps because it didn’t show that. Using the US as an example, I reconstructed the index as best I could from World Bank data, and here’s what came out for the period since 1990:

ISEW

The top line is US GDP as normally measured. The bottom line is the ISEW. The gap between those lines expands on a linear scale, but not on a logarithmic scale; that is to say, GDP and ISEW grow at almost exactly the same rate, so ISEW is always a constant (and large) proportion of GDP. By construction it is necessarily smaller (it basically takes GDP and subtracts out from it), but the fact that it is growing at the same rate shows that our economic growth is not being driven by depletion of natural resources or the military-industrial complex; it’s being driven by real improvements in education and technology.

The Human Development Index has grown in almost every country (albeit at quite different rates) since 1990. Global poverty is the lowest it has ever been. We are living in a golden age of prosperity. This is such a golden age for our civilization, our happiness rating maxed out and now we’re getting +20% production and extra gold from every source. (Sorry, gamer in-joke.)

Now, it is said that pride cometh before a fall; so perhaps our current mind-boggling improvements in human welfare have only been purchased on borrowed time as we further drain our natural resources.

There is some cause for alarm: We’re literally running out of fish, and groundwater tables are falling rapidly. Due to poor land use deserts are expanding. Huge quantities of garbage now float in our oceans. And of course, climate change is poised to kill millions of people. Arctic ice will melt every summer starting in the next few years.

And yet, global carbon emissions have not been increasing the last few years, despite strong global economic growth. We need to be reducing emissions, not just keeping them flat (in a previous post I talked about some policies to do that); but even keeping them flat while still raising standard of living is something a lot of environmentalists kept telling us we couldn’t possibly do. Despite constant talk of “overpopulation” and a “population bomb”, population growth rates are declining and world population is projected to level off around 9 billion. Total solar power production in the US expanded by a factor of 40 in just the last 10 years.

Of course, I don’t deny that there are serious environmental problems, and we need to make policies to combat them; but we are doing that. Humanity is not mindlessly plunging headlong into an abyss; we are taking steps to improve our future.

And in fact I think environmentalists deserve a lot of credit for that! Raising awareness of environmental problems has made most Americans recognize that climate change is a serious problem. Further pressure might make them realize it should be one of our top priorities (presently most Americans do not).

And who knows, maybe the extremist doomsayers are necessary to set the Overton Window for the rest of us. I think we of the center-left (toward which reality has a well-known bias) often underestimate how much we rely upon the radical left to pull the discussion away from the radical right and make us seem more reasonable by comparison. It could well be that “climate change will kill tens of millions of people unless we act now to institute a carbon tax and build hundreds of nuclear power plants” is easier to swallow after hearing “climate change will destroy humanity unless we act now to transform global capitalism to agrarian anarcho-socialism.” Ultimately I wish people could be persuaded simply by the overwhelming scientific evidence in favor of the carbon tax/nuclear power argument, but alas, humans are simply not rational enough for that; and you must go to policy with the public you have. So maybe irrational levels of pessimism are a worthwhile corrective to the irrational levels of optimism coming from the other side, like the execrable sophistry of “in praise of fossil fuels” (yes, we know our economy was built on coal and oil—that’s the problem. We’re “rolling drunk on petroleum”; when we’re trying to quit drinking, reminding us how much we enjoy drinking is not helpful.).

But I worry that this sort of irrational pessimism carries its own risks. First there is the risk of simply giving up, succumbing to learned helplessness and deciding there’s nothing we can possibly do to save ourselves. Second is the risk that we will do something needlessly drastic (like the a radical socialist revolution) that impoverishes or even kills millions of people for no reason. The extreme fear that we are on the verge of ecological collapse could lead people to take a “by any means necessary” stance and end up with a cure worse than the disease. So far the word “ecoterrorism” has mainly been applied to what was really ecovandalism; but if we were in fact on the verge of total civilizational collapse, I can understand why someone would think quite literal terrorism was justified (actually the main reason I don’t is that I just don’t see how it could actually help). Just about anything is worth it to save humanity from destruction.

What is progress? How far have we really come?

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It is a controversy that has lasted throughout the ages: Is the world getting better? Is it getting worse? Or is it more or less staying the same, changing in ways that don’t really constitute improvements or detriments?

The most obvious and indisputable change in human society over the course of history has been the advancement of technology. At one extreme there are techno-utopians, who believe that technology will solve all the world’s problems and bring about a glorious future; at the other extreme are anarcho-primitivists, who maintain that civilization, technology, and industrialization were all grave mistakes, removing us from our natural state of peace and harmony.

I am not a techno-utopian—I do not believe that technology will solve all our problems—but I am much closer to that end of the scale. Technology has solved a lot of our problems, and will continue to solve a lot more. My aim in this post is to convince you that progress is real, that things really are, on the whole, getting better.

One of the more baffling arguments against progress comes from none other than Jared Diamond, the social scientist most famous for Guns, Germs and Steel (which oddly enough is mainly about horses and goats). About seven months before I was born, Diamond wrote an essay for Discover magazine arguing quite literally that agriculture—and by extension, civilization—was a mistake.

Diamond fortunately avoids the usual argument based solely on modern hunter-gatherers, which is a selection bias if ever I heard one. Instead his main argument seems to be that paleontological evidence shows an overall decrease in health around the same time as agriculture emerged. But that’s still an endogeneity problem, albeit a subtler one. Maybe agriculture emerged as a response to famine and disease. Or maybe they were both triggered by rising populations; higher populations increase disease risk, and are also basically impossible to sustain without agriculture.

I am similarly dubious of the claim that hunter-gatherers are always peaceful and egalitarian. It does seem to be the case that herders are more violent than other cultures, as they tend to form honor cultures that punish all sleights with overwhelming violence. Even after the Industrial Revolution there were herder honor cultures—the Wild West. Yet as Steven Pinker keeps trying to tell people, the death rates due to homicide in all human cultures appear to have steadily declined for thousands of years.

I read an article just a few days ago on the Scientific American blog which included the following claim so astonishingly nonsensical it makes me wonder if the authors can even do arithmetic or read statistical tables correctly:

I keep reminding readers (see Further Reading), the evidence is overwhelming that war is a relatively recent cultural invention. War emerged toward the end of the Paleolithic era, and then only sporadically. A new study by Japanese researchers published in the Royal Society journal Biology Letters corroborates this view.

Six Japanese scholars led by Hisashi Nakao examined the remains of 2,582 hunter-gatherers who lived 12,000 to 2,800 years ago, during Japan’s so-called Jomon Period. The researchers found bashed-in skulls and other marks consistent with violent death on 23 skeletons, for a mortality rate of 0.89 percent.

That is supposed to be evidence that ancient hunter-gatherers were peaceful? The global homicide rate today is 62 homicides per million people per year. Using the worldwide life expectancy of 71 years (which is biasing against modern civilization because our life expectancy is longer), that means that the worldwide lifetime homicide rate is 4,400 homicides per million people, or 0.44%—that’s less than half the homicide rate of these “peaceful” hunter-gatherers. If you compare just against First World countries, the difference is even starker; let’s use the US, which has the highest homicide rate in the First World. Our homicide rate is 38 homicides per million people per year, which at our life expectancy of 79 years is 3,000 homicides per million people, or an overall homicide rate of 0.3%, slightly more than a third of this “peaceful” ancient culture. The most peaceful societies today—notably Japan, where these remains were found—have homicide rates as low as 3 per million people per year, which is a lifetime homicide rate of 0.02%, forty times smaller than their supposedly utopian ancestors. (Yes, all of Japan has fewer total homicides than Chicago. I’m sure it has nothing to do with their extremely strict gun control laws.) Indeed, to get a modern homicide rate as high as these hunter-gatherers, you need to go to a country like Congo, Myanmar, or the Central African Republic. To get a substantially higher homicide rate, you essentially have to be in Latin America. Honduras, the murder capital of the world, has a lifetime homicide rate of about 6.7%.

Again, how did I figure these things out? By reading basic information from publicly-available statistical tables and then doing some simple arithmetic. Apparently these paleoanthropologists couldn’t be bothered to do that, or didn’t know how to do it correctly, before they started proclaiming that human nature is peaceful and civilization is the source of violence. After an oversight as egregious as that, it feels almost petty to note that a sample size of a few thousand people from one particular region and culture isn’t sufficient data to draw such sweeping judgments or speak of “overwhelming” evidence.

Of course, in order to decide whether progress is a real phenomenon, we need a clearer idea of what we mean by progress. It would be presumptuous to use per-capita GDP, though there can be absolutely no doubt that technology and capitalism do in fact raise per-capita GDP. If we measure by inequality, modern society clearly fares much worse (our top 1% share and Gini coefficient may be higher than Classical Rome!), but that is clearly biased in the opposite direction, because the main way we have raised inequality is by raising the ceiling, not lowering the floor. Most of our really good measures (like the Human Development Index) only exist for the last few decades and can barely even be extrapolated back through the 20th century.

How about babies not dying? This is my preferred measure of a society’s value. It seems like something that should be totally uncontroversial: Babies dying is bad. All other things equal, a society is better if fewer babies die.

I suppose it doesn’t immediately follow that all things considered a society is better if fewer babies die; maybe the dying babies could be offset by some greater good. Perhaps a totalitarian society where no babies die is in fact worse than a free society in which a few babies die, or perhaps we should be prepared to accept some small amount of babies dying in order to save adults from poverty, or something like that. But without some really powerful overriding reason, babies not dying probably means your society is doing something right. (And since most ancient societies were in a state of universal poverty and quite frequently tyranny, these exceptions would only strengthen my case.)

Well, get ready for some high-yield truth bombs about infant mortality rates.

It’s hard to get good data for prehistoric cultures, but the best data we have says that infant mortality in ancient hunter-gatherer cultures was about 20-50%, with a best estimate around 30%. This is statistically indistinguishable from early agricultural societies.

Indeed, 30% seems to be the figure humanity had for most of history. Just shy of a third of all babies died for most of history.

In Medieval times, infant mortality was about 30%.

This same rate (fluctuating based on various plagues) persisted into the Enlightenment—Sweden has the best records, and their infant mortality rate in 1750 was about 30%.

The decline in infant mortality began slowly: During the Industrial Era, infant mortality was about 15% in isolated villages, but still as high as 40% in major cities due to high population densities with poor sanitation.

Even as recently as 1900, there were US cities with infant mortality rates as high as 30%, though the overall rate was more like 10%.

Most of the decline was recent and rapid: Just within the US since WW2, infant mortality fell from about 5.5% to 0.7%, though there remains a substantial disparity between White and Black people.

Globally, the infant mortality rate fell from 6.3% to 3.2% within my lifetime, and in Africa today, the region where it is worst, it is about 5.5%—or what it was in the US in the 1940s.

This precipitous decline in babies dying is the main reason ancient societies have such low life expectancies; actually once they reached adulthood they lived to be about 70 years old, not much worse than we do today. So my multiplying everything by 71 actually isn’t too far off even for ancient societies.

Let me make a graph for you here, of the approximate rate of babies dying over time from 10,000 BC to today:

Infant_mortality.png

Let’s zoom in on the last 250 years, where the data is much more solid:

Infant_mortality_recent.png

I think you may notice something in these graphs. There is quite literally a turning point for humanity, a kink in the curve where we suddenly begin a rapid decline from an otherwise constant mortality rate.

That point occurs around or shortly before 1800—that is, it occurs at industrial capitalism. Adam Smith (not to mention Thomas Jefferson) was writing at just about the point in time when humanity made a sudden and unprecedented shift toward saving the lives of millions of babies.

So now, think about that the next time you are tempted to say that capitalism is an evil system that destroys the world; the evidence points to capitalism quite literally saving babies from dying.

How would it do so? Well, there’s that rising per-capita GDP we previously ignored, for one thing. But more important seems to be the way that industrialization and free markets support technological innovation, and in this case especially medical innovation—antibiotics and vaccines. Our higher rates of literacy and better communication, also a result of raised standard of living and improved technology, surely didn’t hurt. I’m not often in agreement with the Cato Institute, but they’re right about this one: Industrial capitalism is the chief source of human progress.

Billions of babies would have died but we saved them. So yes, I’m going to call that progress. Civilization, and in particular industrialization and free markets, have dramatically improved human life over the last few hundred years.

In a future post I’ll address one of the common retorts to this basically indisputable fact: “You’re making excuses for colonialism and imperialism!” No, I’m not. Saying that modern capitalism is a better system (not least because it saves babies) is not at all the same thing as saying that our ancestors were justified in using murder, slavery, and tyranny to force people into it.