15 February 2011

Your iPhone will not save the world

While listening to Russ Roberts discuss Adam Smith's Wealth of Nations and Theory of Moral Sentiments with Nicholas Phillipson [1], I thought about the difference between wealth and happiness. Wealth and income -- measured by balance sheets and GDP -- are not very good ways to characterize progress and happiness. Progress is perhaps the wrong word, since it assumes change, and there are many ways that change do not always make us better off (everything from freedom to divorce to freedom to text people). Happiness is even less amenable to GDP figures, since there are plenty of "zero-GDP" activities (walking in the woods) that make people happy.

Most economists understand this, in the way that they define "utility" as the object of man's desire. Most economists translate this to mean happiness; sloppy ones, politicians and gossip columnists translate it as income or consumption [2].

Double the income (or consumption) clearly does not mean double the happiness, so you can see the fallacy there (past posts on the growth cult and consumption vs family).

On the other hand, Smith was surely aware of these problems, and I reckon that his notion of "wealth" had a lot to do with the good life.

With those thoughts on the table, I turn to the next podcast, where Russ talks with Kevin Kelly about "What technology wants." This talk was interesting in many ways, but they spent some time discussing the use and abuse of technology in our society.

That podcast, along with humans innovate and "things are great" podcast with Matt Ridley [3], made me put on my resource and environment cap.

First, we have to remember that a lot of our prosperity came from mining non-renewable resources and dumping waste into the non-renewable environment [4]. The Industrial Revolution was built on technology, yes, but it was also built on coal. We live well now because we are borrowing and consuming energy from the future. That's the kind of thing that's unsustainable if either we run out of energy supplies and other resources to mine (something I am not worried about, because prices will help us replace peak oil) or we run out of environment where we dump the pollution from our lifestyle and population.

I am definitely worried about the environment, and for a very simple reason: it's a commons which we all benefit from and pollute and for which we cannot attach a price to ensure that it's carefully managed [5].

Now here are the important points that many people (including Roberts and his guests) get wrong do not think through:
  • The readers of this blog -- most of them in the developed world -- are going to have to pay more for sushi, lose the reefs for diving tours and spend more on disaster insurance. For us, adopting to damage to the environment and climate change is going to be annoying, but ultimately cost us less than 10 percent of our income.

  • The people who are going to suffer are the people who live in the developing world. They are going to lose their food supply, their homes and perhaps their loved ones, as floods, mudslides, crop failures and disease take a massive toll on their already fragile lives. For example, the countries identified as having the fastest growing weather disaster impact until 2030 are: Venezuela, Myanmar, Honduras, Micronesia, Haiti, Bangladesh, Grenada, Somalia, Samoa and Nicaragua.
The iPhone will not save them. Money probably will not save them. What they will need is a massive improvement in their institutions for public works and disaster response. From what we've seen in Haiti, it's more likely that we are going to see millions (maybe close to a billion) people in wretched condition.

Bottom Line: Consumption is nice, but it may not make us happy. Even worse, it may have adverse impacts on our environment and our neighbors -- impacts that will come back to bite us in the ass. Plan accordingly.

[1] The discussion veered onto Bernard de Mandeville, a 17th century free thinker who favored "greed is good," or (more diplomatically) the benefits that individual choice and demand delivers to those who supply. His Fable of the Bees is entertaining.

[2] Donald Deidre McCloskey's book, If You're So Smart: The Narrative of Economic Expertise talks about how economists are not very good at explaining the world (the alternative subtitle is "...then why ain't you rich"), but McCloskey (who changed her sex after writing the book) was surely missing the point of economics: It's not to be rich, it's to be happy, and plenty of economists I know are pretty good at being happy.

[3] I'll review his book The Origins of Virtue soon.

[4] Background posts (one two) comparing environmental goods to natural resources.

[5] I wrote about this a few years ago: Conversation with My Dad, part one and part two.

3 comments:

stickman said...

Your post ties in strongly with an idea that I've been trying to popularise: The "relative prices" argument for swift and decisive action against climate change.

In a nutshell: Environmental goods and man-made goods are imperfect substitutes. With environmental goods expected to become "scarcer" as a result of climate change (increased drought, loss of biodiversity, etc), it follows that they will become more expensive in comparison with man-made goods. This will significantly impact our ability to generate or even enjoy future material wealth.

The troubling thing is that most economic models on the impacts of climate change simply assume perfect substitution between environmental and man-made goods and, in doing so, almost certainly overstate future wealth projections.

If anyone is interested in reading more, I have some links to some good papers on this issue here: http://stickmanscorral.blogspot.com/2011/02/food-prices-and-climate-change-gasp.html

Anonymous said...

David,

There is a major problem with using the "people in the developing world will be most harmed" argument.

The people of the developing world, 50 or 100 years hence, will be tremendously richer than the developed world is today.

Even the richest man in the world didn't have access to antibiotics in 1900. Now, such drugs are widely available across the socioeconomic spectrum.

You are urging us to forgo consumption and growth now, for the safe of people who will be much more materially and technologically better off.

Frankly, I'm unmoved by this argument.

David Zetland said...

@Anonymous:
(1) if they're not dead.
(2) we also benefit from saving the environment (the selfish reason).