Megan McArdle and Thomas Malthus vs. Greg Clark

The cage match!

In this corner, Megan McArdle and Parson Malthus:

Megan McArdle: Economics of Contempt:

Call me crazy, but I think a permanent doubling of food and energy prices would slow our rate of economic growth pretty significantly. How long it would take incomes to recover "at current rates of economic growth" is irrelevant when the doubling of food and energy prices would lower the rate of economic growth.

Given that we and all our machines run on either food or energy, it's a pretty safe bet to say that doubling their prices would have a sizeable impact on growth.

In this corner, Greg Clark:

China, India and Malthus - Los Angeles Times: Thomas Malthus warned in 1798 that population pressures would forever keep food and energy scarce and incomes low. In the 200 years since, world population has grown sevenfold, to 6.7 billion. Yet food and energy have become cheaper and more abundant. Malthus's dystopia, it seemed, belonged in history's junkyard. But, suddenly, rapid growth in China and India and the consequent scramble for increasingly scarce resources has revived the Malthusian specter. By 2050, 9 billion people in a world where all have U.S. consumption standards would need eight times as much oil and five times as much food than the planet current uses. Is the future a world of $10-a-gallon gas and $20 Big Macs?

Two things allowed growth to occur from 1750 to 2000 with declining commodity prices. First, only a small fraction of the world grew rapidly.... The West was alone in its voracious appetite for raw materials and energy. Second, fossil fuels cheaply substituted for land in agriculture by increasing crop yields.... What will happen depends on the race between technological improvement and growing demand.... [N]o one can predict which force will win. A "full world"... may also be one of cheap and abundant commodities. But suppose the worse. Suppose [commodity] abundance is over. Must we fear that?

The answer is no. First, the share of modern U.S. consumption devoted to raw food and energy purchases is small: 1.4% for food raw materials, 7% for energy. The U.S. economy can withstand enormous increases in food and energy costs with little damage because food and energy are even now so extravagantly cheap that most of both are squandered in uses of little value. In my town -- Davis, Calif. -- there is a traffic jam outside the main high school each morning as healthy teenagers are ferried by car or drive themselves a few miles to school. They are ferried from houses that are heated, air-conditioned and lighted, most of which rarely gets used by people.

Currently in the U.S., we consume the energy equivalent of six gallons of gas per person per day.... Danes, for example -- whose public policy mandates expensive energy -- use the equivalent of only three gallons.... The Danes are not suffering.... Given that we can easily reduce consumption when costs go up, a permanent doubling of the prices of food and energy would reduce income by less than 6%. At current rates of economic growth, incomes would recover from such a shock in less than three years. After that, onward on our march to ever greater prosperity.

I call this one for Greg Clark. I am a utopian neoliberal optimist.

Comments

[howard]

it's not a fair match: mccardle is a known idiot.

[bodzin]

Howdy Brad,
It's not so simple, is it? Real estate and urban planning lock in high levels of energy consumption in the U.S. There is no easy way for the U.S. to approach a Danish level of consumption without, in Clark's word, "suffering." Some of this "suffering" -- fewer vehicle and air trips and a reduction in use of climate control -- would be very good for the environment and economy, but when choices become more constrained by a lack of resources, that is indeed suffering.

Except for the high-schoolers being forced to bike to school in Davis. That isn't suffering.

[jerry]

I don't see there's an argument here. Sure, it's always amazing that McArdle has the time to spend on these big thoughts and not just consider how much drool she must output in the village square, but in the short term, 5-20 years, I think she's right. And that's for the reasons that bodzin gives and that your co-pilot, Duncan Black, is correct to often point out.

Until cities, transportation, food distribution, energy production, and energy distribution are rearranged there will be enormous impacts to growth.

I live in a state that absolutely requires the country's largest nuke plant (and one of its most unsafe) to run A/C 24x7 throughout 5 months of the year. The heat, and the enormous homes and malls, and the almost complete lack of bus service basically require parents to drive kids to school or to get the kids a car. Oddly enough, people here want to know why kids here are so obese, and have little to do apart from hanging out at malls and taking meth, but the reason is clear. Given the geography and our solutions to it here, we don't use enough electricity and other resources to support our teenagers at times when they can't drive.

And I have an enormous choice to make if I don't want to waste gas, and electricity. A judge, over the recommendations of the court psychs, allowed my ex to move out of state, and did not give me 50/50 custody. So I moved about two miles away from my kids so that I could visit them as the courts allowed. But in the year it took me to find a job, the one job I found was 35 miles away, there is no bus that can get me there, and no one else in this plant of 5,000 workers lives near me.

So yeah, I consider a choice of paying high gas prices so I can both work and see my kids, or trying to find another job when the last job search took over a year to be an economic impact.

I understand that this will be an economic opportunity for some people. And I believe in Schumpeter's creative destruction. That's why I agree in the long run we'll be okay, and if I believe in Star Trek, I will actually think we'll be better off.

My life is in the short run, and thanks to the way courts, city planners and other bureaucrats have jiggered society, it's looking pretty screwed.

I believe in Keynes too. Unless Clark is talking about the short run, or McArdle about the long run, I just don't see the conflict.

[Matt]

Not a good double blind study since Malthus helped defined the study of aggregate economic estimation. Remember the first official census, 1750, France was it?

The farther we look, the smoother the change, the lower the risk, the wider the bandwidth, and the much greater the number of economic exchanges for this accuracy.

And we have accuracy. The extreme positions on these Malthusian limits are arguing in the small percentage range. Compare that to 1750 and prior.

[ideogenetic]

>I am a utopian neoliberal optimist.<

It seems to me we face a real-world Pascal's wager in all this. The costs of being wrong are partial extinction or worse.

[Wackernagel and Rees estimated that if all global citizens aspired to the American lifestyle and attendant levels of consumption, we would require two additional Earths to provide enough land area to supply natural resources and to absorb industrial waste! In a startling new study, their work suggests that the ecological footprint of humanity began to exceed the capacity of the Earth to supply resources in the early 1980s.]
http://ublib.buffalo.edu/libraries/projects/cases/footprint/footprint.html#References

[archer]

I would not mind paying $20/gal of gas if I were getting 100mpg.

[Tim]

One impact that you haven't discussed is the effect of these rising prices on the formation and survival of households. Malthusian musings might turn out to be incorrect, but that is cold comfort to people thinking about moving out of their parents' house, or getting married and starting a family (OTOH, there probably is a dampening effect on divorces). Households perform a lot of unmonetized activities that contribute to the economy, maybe now we will have the unpleasant experience of learning more about how much those activities are worth in dollars and cents when they are being performed less often.

[jerry]

Krugman on "Sick Transit...."
http://krugman.blogs.nytimes.com/2008/05/10/sick-transit-and-all-that/

Since economists consider people to be rational actors, there is a rational reason why 77% of people drive to work alone.

I'd say there's going to be quite an impact until you can convince a great many of that 77% that another choice is more rational.

[archer]

Gas Prices Send Surge of Riders to Mass Transit
http://www.nytimes.com/2008/05/10/business/10transit.html?partner=rssnyt&emc=rss - "Cities with long-established public transit systems and areas with a strong driving culture are both reporting increases in ridership on trains and buses."

[Tomas]

Well, if it all goes "Mad Max", then you can come live in my warlord state, Brad. When the going gets tough it is always nice to have a neoliberal optimist at hand to tell the gang that the market will sort out the mutant problem.

[Maynard Handley]

Hmm. An interesting progression.

So we had Ehrlich and friends in the late 60s telling us that overpopulation was a problem, and the response was Julian Simon's wager that the price of a commodity, any commodity was going to fall. Simon is supposed, by the short-sighted reckoning of economists, to have won this encounter. But Ehrlich was was focussed on the long term (100yrs+), not on what was going to happen in the 1980s.

Now we appear to have economists unwilling to make the same bet as Simon. No-one is prepared to claim that the price of copper (or oil, or rice) is going to fall over the next ten years, and instead we have a new dodge: "sure the prices will rise, but it won't actually matter much".

Hard not avoid seeing a comparison here to the progress of the global warming denialists.

Meanwhile, answer me this: OK, so Danes use half the energy of Americans. Great, so we shift all of the US over to Dane style resource consumption. That frees up enough resources to shift around 600 million Chinese to half the US lifestyle. And behind them, there are another 600 million. And behind them, a billion Indians.
Meanwhile peak oil becomes more real by the day, as does global warming, as do agriculture and fishery limits.

Why is it that the people making these happy noises, "I am a utopian neoliberal optimist", appear unable to do basic math. Do you people deny the numbers I used above? Or do you deny the fact that these non-Westerners will ever reach western levels of prosperity? And if you deny that, what is the mechanism by which you imagine their wants will be suppressed while those of Americans will not?
It is not, and NEVER HAS BEEN, about the population of the US, problematic as that is. It is about the population of the entire world.

[bigTom]

Clearly the billions of aspiring people will not be able to consume similar quantities of commodities as the current crop of the world's rich does. Some sort of substantial dematerialization of the world economy is clearly needed, and willingly or unwillingly change toward that end will happen. I doubtlessly not be a seemless transition. Clearly the USA can no longer afford its oil habit, which is now over a half $T per year. And oil will rise in price until a substantial number of people reduce consumption. And the amount of per capita reduction will be an increasing function of time. It is not an impossible transition, but it won't be an easy one either. And most of the population, even more of the media, and virtually the entire political establishment are still in denial. Actually peak per capita world oil consumption happened more than a quarter century ago, but the slope of the downward curve is increasing. As is the number of people who are actively competing for a slice of the shrinking oil/commodity pie.

[JonF]

Re: The heat, and the enormous homes and malls, and the almost complete lack of bus service basically require parents to drive kids to school or to get the kids a car.

Whatever happened to good old-fashioned school buses? We still have them in Florida-- are there really parts of the country that don't have them?