iied	
  

Escaping	
  the	
  
Last	
  
Malthusian	
  
Trap

A	
  talk	
  by	
  
Eric	
  Beinhocker	
  
INET	
  Oxford	
 ...
The	
  last	
  
Malthusian	
  trap	
  

Today’s	
  
discussion	
  

	
  	
  	
  Why	
  neoclassical	
  
economics	
  is	
 ...
The	
  last	
  
Malthusian	
  
trap	
  

	
  	
  	
  Why	
  neo-­‐classical	
  
economics	
  is	
  the	
  
wrong	
  tool	
...
Some	
  2.5	
  million	
  years	
  of	
  economic	
  history	
  (in	
  brief)	
  
World	
  GDP	
  per	
  capita	
  
1990	
...
The	
  Malthusian	
  trap	
  (circa	
  1000	
  BC	
  to	
  1800	
  AD)	
  
Malthus	
  in	
  a	
  nutshell	
  
A	
  
Wages	...
UnHl	
  1800	
  Malthus	
  …then	
  a	
  third	
  of	
  the	
  world	
  escaped	
  
ruled…	
  
Global	
  income	
  per	
  ...
…	
  but	
  with	
  an	
  unsustainable	
  growth	
  model	
  …	
  
Changes	
  in	
  
greenhouse	
  
gases	
  from	
  
ice...
…	
  and	
  another	
  third	
  of	
  the	
  world	
  are	
  poised	
  to	
  escape	
  
Annual	
  household	
  disposable	...
We	
  face	
  our	
  final	
  Malthusian	
  trap	
  

Peak at 550 ppm, long-term
stabilization 550 ppm

Annual	
  emissions...
What	
  we	
  need	
  to	
  do	
  and	
  quesHons	
  for	
  economics	
  
The	
  world’s	
  to-­‐do	
  list	
  
	
  
Re-­‐...
The	
  last	
  
Malthusian	
  trap	
  

A	
  complexity	
  
economics	
  view	
  
of	
  growth	
  

Why	
  
neoclassical	
...
Neoclassical	
  economics	
  cannot	
  explain	
  	
  
key	
  characterisHcs	
  of	
  the	
  economy	
  
The	
  economy	
  is	
  viewed	
  as	
  an	
  equilibrium	
  system	
  
The	
  economy	
  is	
  viewed	
  as	
  an	
  equilibrium	
  system	
  
but	
  such	
  a	
  system	
  cannot	
  grow	
  ex...
And	
  such	
  a	
  system	
  cannot	
  just	
  ‘crash’	
  –	
  as	
  ours	
  has	
  
The	
  accidental	
  history	
  of	
  equilibrium	
  in	
  economics	
  
Neoclassical	
  failure	
  #1:	
  Theory	
  of	
  growth	
  
	
  	
  	
  Y	
  (t)	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	...
Neoclassical	
  failure	
  #2:	
  Human	
  behaviour	
  
Theory	
  doesn’t	
  match	
  real	
  world	
  behaviour
	
  
Exp...
Neoclassical	
  failure	
  #3:	
  Cost-­‐benefit	
  analysis	
  
“Discount	
   ate!’ 	
  
‘Discount	
  rrate!”
	
  

Prof.	...
Neoclassical	
  failure	
  #4:	
  Time	
  symmetry	
  
Cost-­‐benefit	
  analysis	
  and	
  discounAng	
  assume	
  path	
 ...
The	
  last	
  
Malthusian	
  trap	
  

A	
  complexity	
  
economics	
  
view	
  of	
  
growth	
  

	
  	
  	
  Why	
  ne...
A	
  different	
  explanaHon	
  –	
  the	
  economy	
  is	
  a	
  ‘complex	
  
adapHve	
  system’	
  

Complex	
  

AdapHve...
A	
  paradigm	
  shis	
  
TRADITIONAL	
  ECONOMICS	
  

COMPLEXITY	
  ECONOMICS	
  

Dynamics	
  

Economies	
  are	
  clo...
Long	
  history	
  of	
  evoluHon	
  in	
  economics	
  (and	
  vice	
  versa)	
  

Problems	
  
• 	
  Driven	
  by	
  a	
...
EvoluHon	
  is	
  a	
  search	
  algorithm	
  for	
  ‘fit	
  order’	
  

VARIATION	
  

SELECTION	
  

AMPLIFICATION	
  

C...
EvoluHonary	
  search	
  through	
  ‘deducHve-­‐Hnkering’	
  
Technologies	
  evolve	
  
Economic	
  evoluAon	
  occurs	
  in	
  three	
  ‘design	
  spaces’	
  

Physical	
  
technologies	
  

Business	
  	
  
p...
What	
  would	
  economic	
  evoluHon	
  look	
  like?	
  
Non-linear wealth
creation

Increasing variety and
complexity

...
But	
  we	
  cannot	
  avoid	
  the	
  Second	
  Law	
  of	
  
Thermodynamics	
  –	
  economic	
  order	
  does	
  not	
  ...
Understanding	
  the	
  “mother	
  of	
  all	
  complex	
  systems”	
  

???	
  
The	
  last	
  
Malthusian	
  trap	
  

A	
  complexity	
  
economics	
  view	
  
of	
  growth	
  

Escaping	
  the	
  
tr...
Industrial	
  revoluAons	
  are	
  producAvity	
  revoluAons	
  

Physical	
  
technologies	
  

Business	
  	
  
plans	
 ...
How	
  do	
  we	
  evolve	
  higher	
  ‘carbon	
  producHvity’?	
  
Kaya	
  idenAty	
  

F	
  

=	
  

Anthropogenic	
  
(...
To	
  grow	
  the	
  economy	
  and	
  reduce	
  emissions,	
  carbon	
  
producHvity	
  must	
  rise	
  10x	
  to	
  $7,3...
If	
  emissions	
  are	
  capped,	
  higher	
  economic	
  growth	
  
requires	
  higher	
  carbon	
  producHvity	
  
Carb...
If	
  we	
  capped	
  emissions	
  and	
  lived	
  at	
  today’s	
  carbon	
  
producHvity,	
  there	
  is	
  not	
  much	...
A	
  carbon	
  producHvity	
  revoluHon	
  is	
  required	
  	
  
three	
  Hmes	
  faster	
  than	
  the	
  industrial	
  ...
But	
  no-­‐one	
  today	
  is	
  close	
  to	
  required	
  carbon	
  
producHvity	
  
Carbon	
  producAvity	
  2007,	
  ...
Carbon	
  producHvity	
  has	
  increased	
  over	
  Hme,	
  but	
  not	
  
nearly	
  quickly	
  enough	
  

*	
  	
  5-­‐...
Technology	
  will	
  help	
  –	
  but	
  we	
  need	
  to	
  accelerate	
  
innovaHon	
  and	
  buy	
  Hme	
  

	
  Sourc...
Some	
  hypotheses	
  for	
  climate	
  policy	
  
•  Climate	
  change	
  is	
  far	
  riskier	
  then	
  convenHonal	
  ...
Some	
  hypotheses	
  for	
  climate	
  policy	
  (cont.)	
  
•  Social	
  technology	
  innovaHon	
  just	
  as	
  import...
Summary	
  
Industrial	
  RevoluHon	
  enabled	
  a	
  third	
  of	
  the	
  populaHon	
  to	
  escape	
  the	
  
Malthusi...
‘We	
  cannot	
  solve	
  problems	
  by	
  
using	
  the	
  same	
  kind	
  of	
  thinking	
  
we	
  used	
  when	
  we	
...
Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker
Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker
Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker
Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker
Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker
Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker
Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker
Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker
Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker
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Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker

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In this presentation to IIED as part of the organisation's Critical Themes series, Eric Beinhocker discusses the emerging research that describes the economy as an evolving complex system and what it means for the future of economic growth, climate change, and environmental sustainability.

Beinhocker is the Executive Director of the Institute for New Economic Thinking's research programme at the Oxford Martin School, University of Oxford, a member of the Said Business School at Oxford, and a Visiting Professor of Economics at Central European University.

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Escaping the Last Malthusian Trap: a presentation to IIED by Eric Beinhocker

  1. 1.   iied   Escaping  the   Last   Malthusian   Trap A  talk  by   Eric  Beinhocker   INET  Oxford     London    6  February  2014   Copyright  ©  2014   Eric  Beinhocker   All  rights  reserved  
  2. 2. The  last   Malthusian  trap   Today’s   discussion        Why  neoclassical   economics  is  the   wrong  tool  for   climate  change   A  complexity   economics  view   of  growth   Escaping  the   trap:  creaAng   a  revoluAon   in  carbon   producAvity  
  3. 3. The  last   Malthusian   trap        Why  neo-­‐classical   economics  is  the   wrong  tool  for   climate  change   A  complexity   economics  view   of  growth   Escaping  the   trap:  creaAng   a  revoluAon   in  carbon   producAvity  
  4. 4. Some  2.5  million  years  of  economic  history  (in  brief)   World  GDP  per  capita   1990  internaHonal  dollars   World  populaAon   Thousands   7,000 7,000,000 6,000 6,000,000 5,000,000 5,000 4,000,000 4,000 3,000,000 3,000 2,000,000 2,000 1,000,000 1,000 0 -2,500,000 -2,000,000 -1,500,000 -1,000,000 -500,000 0 0 500,000 Year   Source:    US  Census  Bureau  Historical  EsHmates  of   World  PopulaHon;  Kremer  (1993)   -2,500,000 -2,000,000 -1,500,000 -1,000,000 -500,000 0 500,000 Year   Source:    DeLong  (2005);  data  2.5  million  to  1  million  B.C.   extrapolated  
  5. 5. The  Malthusian  trap  (circa  1000  BC  to  1800  AD)   Malthus  in  a  nutshell   A   Wages   Subsistence   C   B   PopulaHon   12   Stagnant  incomes   Global  income  per  person  (1800  AD  =  1)     10   8 6 4 Malthusian  trap   2 0 1000  BC 500  BC     0   500   1000   1500 1800  AD     900   Rising  populaAon   Thousands     800   700   600   500   400   300   200   100   0   Source:  Clark  (2007)   500   1000   1500   1800  AD   Source:  US  Census  Bureau  Historical  EsHmates     of  World  PopulaHon;  Kremer  (1993)  
  6. 6. UnHl  1800  Malthus  …then  a  third  of  the  world  escaped   ruled…   Global  income  per  person  (indexed  1800  AD  =  1)   12   10   8   The   Great   Divergence   6   4   Industrial  RevoluHon   2   Malthusian  trap   0   1000  BC   Source:  Clark  (2007)   500  BC   0   500   1000   1500   2000  AD  
  7. 7. …  but  with  an  unsustainable  growth  model  …   Changes  in   greenhouse   gases  from   ice  core  and   modern  data   400   350   RadiaHve  forcing  (Wm2)   CO2  (ppm)   300   250   10,000   5000   Time  (before  2005)   Source:    IPCC  AR4  WG1  (2007)   0  
  8. 8. …  and  another  third  of  the  world  are  poised  to  escape   Annual  household  disposable  income     Thousands  RMB,  real  2000        Number  of  households  (millions)   2005   2015   2025   CHINA   200  and  above   1.0   3.4   8.2   100-­‐199   1.6     5.7     19.0     40-­‐99   112.6   8.8   71.4   25-­‐39   Less  than  25   214.1   75.7   74.2   107.5   54.1   57.8   Thousands  RMB,  real  2000   INDIA   1000  and  above   1.2   500-­‐999   10.9   90-­‐199   Less  than  90   Source:  McKinsey  Global  InsHtute   9.5   5.5   2.4     200-­‐499   3.3   33.1   55.1   91.3   101.1   106.0   74.1   94.9   93.1   49.9  
  9. 9. We  face  our  final  Malthusian  trap   Peak at 550 ppm, long-term stabilization 550 ppm Annual  emissions  implied  by  Copenhagen  Accord  pledges  (Gt  CO2e)   Peak at 510 ppm, long-term stabilization 450 ppm 70   Peak at 480 ppm, long-term stabilization 400 ppm 65   Low range of pledges 60   55   50   Probability of temperature increase under 2˚C 30   2.0˚C 70-85% 35   3.0˚C 40-60% 40   Expected temperature increase 15-30% 45   1.8˚C 25   20   15   10   5   0   2005   High range of pledges 2010   2015   2020   2025   2030   2035   2040   2045   2050   Source: “Taking Stock – Emissions Levels Implied by the Copenhagen Accord,” Project Catalyst, February 2010.
  10. 10. What  we  need  to  do  and  quesHons  for  economics   The  world’s  to-­‐do  list     Re-­‐do  the  Industrial   RevoluHon,  creaHng  a   sustainable  economic   system     TransiHon  to  a  low-­‐ carbon  economy  with   minimal  impact  on   welfare  and  growth,   especially  for  the   developing  world     Drive  the  above  with   policy  –  conduct  global   social  engineering  on   an  unprecedented   scale   QuesAons  for    economics     How  did  the  first  Industrial   RevoluHon  occur?  How   might  we  create  a  new   one?     What  are  the  interacHons   between  welfare,  growth   and  de-­‐carbonisaHon?  How   do  we  assess  the  trade-­‐ offs?       What  are  the  leverage   points?  How  do  we  avoid   unintended  consequences?   Preserve  individual   freedom?   Unfortunately   tradiAonal   economics   ill-­‐equipped   to  answer   these  quesAons  
  11. 11. The  last   Malthusian  trap   A  complexity   economics  view   of  growth   Why   neoclassical   economics  is   the  wrong  tool   for  climate   change   Escaping  the   trap:  creaAng   a  revoluAon   in  carbon   producAvity  
  12. 12. Neoclassical  economics  cannot  explain     key  characterisHcs  of  the  economy  
  13. 13. The  economy  is  viewed  as  an  equilibrium  system  
  14. 14. The  economy  is  viewed  as  an  equilibrium  system   but  such  a  system  cannot  grow  explosively,  create   novelty,  nor  spontaneously  self-­‐organize    
  15. 15. And  such  a  system  cannot  just  ‘crash’  –  as  ours  has  
  16. 16. The  accidental  history  of  equilibrium  in  economics  
  17. 17. Neoclassical  failure  #1:  Theory  of  growth        Y  (t)                                =   Output          Cannot  explain  the  Industrial   RevoluHon    F      (K  (t)  ,                            A  (t)        *                          L  (t)  )       Capital   Knowledge   Labour      No  connecHon  with  the  physical   world   Source:  Bolow  (1956),  Romer  (1996),  Nelson  (1996),  Daly  (1999)  
  18. 18. Neoclassical  failure  #2:  Human  behaviour   Theory  doesn’t  match  real  world  behaviour   ExponenHal     discounHng   Hyperbolic   discounHng   Example   Society  spends  $1  billion  today  to  save  10  lives  per  year  in  perpetuity   Social  cost  of  capital  equals  5%   ExponenAal  answer   Cost  =  $4.76  million   per  life  saved   Source:  Axtel  and  McRae  (2006a),  (2006b)   Hyperbolic  answer   Cost  =  $1  million  to  $4  million   per  life  saved  
  19. 19. Neoclassical  failure  #3:  Cost-­‐benefit  analysis   “Discount   ate!’   ‘Discount  rrate!”   Prof.  William  Nordhaus   Lord  (Nicholas)  Stern   • Climate  uncertainty  has  fat  tails  with  power  law  scaling   • Cost-­‐benefit  analysis  typically  assumes  away  the  tails   • Would  pay  a  lot  to  avoid  catastrophe,  e.g.  Weitzman’s   ‘Dismal  Theorem’   Source:  Stein  (2006),  Nordhaus  (2007),  Weitzman  (2007),  Barker  (2008)  
  20. 20. Neoclassical  failure  #4:  Time  symmetry   Cost-­‐benefit  analysis  and  discounAng  assume  path  independence  and  Ame  symmetry   Samuelson  :    M  R  S  (τ,  τ’)  independent  of  C  τ’’   But  climate  effects  are  highly  path  dependent  and  largely  irreversible  on  human  Ame  scales   Source:  Arrow  and  Fischer  (1974),  Frederich,  Lowenstein,  Donohue  (2002),  Dietz  (2007)  
  21. 21. The  last   Malthusian  trap   A  complexity   economics   view  of   growth        Why  neo-­‐classical   economics  is  the   wrong  tool  for   climate  change   Escaping  the   trap:  creaAng   a  revoluAon   in  carbon   producAvity  
  22. 22. A  different  explanaHon  –  the  economy  is  a  ‘complex   adapHve  system’   Complex   AdapHve   System   Many  interacHng  agents  and   organizaHons  of  agents   Designs  and  strategies     evolve  over  Hme   Macro  parerns  emerge     from  micro  behavior  
  23. 23. A  paradigm  shis   TRADITIONAL  ECONOMICS   COMPLEXITY  ECONOMICS   Dynamics   Economies  are  closed,  staHc,  linear   systems  in  equilibrium   Economies  are  open,  dynamic,     non-­‐linear  systems  far  from  equilibrium   Agents   Homogeneous  agents   •  Only  use  raHonal  deducHon   •  Make  no  mistakes,  have  no  biases   •  No  need  to  learn   Heterogeneous  agents   • Mix  deducHve/inducHve  decisions   • Subject  to  errors  and  biases   • Learn  and  adapt  over  Hme   Networks   Assume  agents  only  interact  indirectly   through  market  mechanisms   Explicitly  accounts  for  agent-­‐to-­‐agent   interacHons  and  relaHonships   Emergence   Treats  micro  and  macroeconomics  as   separate  disciplines   Macro  parerns  emerge  from  micro   behaviors  and  interacHons   EvoluHon   No  endogenous  mechanism  for   creaHng  novelty  or  growth  in  order   and  complexity   EvoluHonary  process  creates   novelty  and  growing  order  and   complexity  over  Hme  
  24. 24. Long  history  of  evoluHon  in  economics  (and  vice  versa)   Problems   •   Driven  by  a  biological  metaphor  for  the  economy     •   Not  built  on  a  general  computaHonal  view  of  evoluHon  
  25. 25. EvoluHon  is  a  search  algorithm  for  ‘fit  order’   VARIATION   SELECTION   AMPLIFICATION   Create  a  variety  of  experiments   Select  designs  that  are  ‘fit’   Amplify  fit  designs,     de-­‐amplify  unfit  designs   REPEAT  
  26. 26. EvoluHonary  search  through  ‘deducHve-­‐Hnkering’  
  27. 27. Technologies  evolve  
  28. 28. Economic  evoluAon  occurs  in  three  ‘design  spaces’   Physical   technologies   Business     plans   Social     technologies  
  29. 29. What  would  economic  evoluHon  look  like?   Non-linear wealth creation Increasing variety and complexity Spontaneous selforganization
  30. 30. But  we  cannot  avoid  the  Second  Law  of   Thermodynamics  –  economic  order  does  not   come  for  free  
  31. 31. Understanding  the  “mother  of  all  complex  systems”   ???  
  32. 32. The  last   Malthusian  trap   A  complexity   economics  view   of  growth   Escaping  the   trap:  creaAng     a  revoluAon   in  carbon   producAvity        Why  neoclassical   economics  is  the   wrong  tool  for   climate  change  
  33. 33. Industrial  revoluAons  are  producAvity  revoluAons   Physical   technologies   Business     plans   Social     technologies   Rapid  evoluAon  (e.g.  “Cambrian  explosion”)   Rapid  rise  in  producAvity  
  34. 34. How  do  we  evolve  higher  ‘carbon  producHvity’?   Kaya  idenAty   F   =   Anthropogenic   (CO2  emissions)   Carbon  producHvity   ~   =   Source:  Beinhocker,  et.  al.  (2008)   p   *   GDP     per   capita   PopulaHon   1   e   *   f   g   +   *   e   *   Energy   intensity     of  GDP   Non-­‐energy  emissions   and  other  GHGs   f   Carbon     intensity   of  energy   ≈   $GDP   CO2e  
  35. 35. To  grow  the  economy  and  reduce  emissions,  carbon   producHvity  must  rise  10x  to  $7,300  per  tonne  by  2050   World  GDP,  US$  tn  (real  2000)   150 125 100 75 50 25 0 146   +3.1%   per  year   41   2000 2010 2020 2030 2040 2050 Global  emissions,  tCO2e   60 55   -­‐2.4%   50 per  year   40 30 20 10 0 2,000 7,300   10x   740   0 2000 2010 2020 2030 2040 2050 20   2000 2010 2020 2030 2040 2050 Source:  Beinhocker,  et.  al.  (2008)   Carbon  producAvity,     US$  (real  2000)/tCO2e   Carbon     producHvity  =   8,000 GDP   6,000 Emissions   +5.6%   4,000 / per  year  
  36. 36. If  emissions  are  capped,  higher  economic  growth   requires  higher  carbon  producHvity   Carbon  producAvity  required  to  reach  20  Gt  CO2e  by  2050   US$  (real  2000)/tCO2e   16,000 Annual  real     growth,  %   14,000 -­‐2   -­‐1   0   1   2   3   4   5   12,000 10,000 Base  case  forecast   8,000 6,000 4,000 2,000 Carbon   producAvity   required   870   1,300   2,000   3,100   4,700   7,000   10,500   15,800   0 -­‐2 -­‐1 0 1 2 GDP  growth  required  to  hit  20Gt  at   BAU  carbon  producHvity  growth    Source:  Global  Insight;  IPCC;  McKinsey  analysis   3 4 5 Forecast  GDP  growth  rate   2008-­‐2050,  percent   Without  carbon   producHvity  growth   need  to  shrink   economy  by  >-­‐2%  per   annum  
  37. 37. If  we  capped  emissions  and  lived  at  today’s  carbon   producHvity,  there  is  not  much  we  could  ‘afford’   *      Emissions  from  land  use  change  not  included   **  Based  on  10Gt/year  sustainable  emissions  and  future  populaHon  of  10  billion  people   Source:    McKinsey  analysis  
  38. 38. A  carbon  producHvity  revoluHon  is  required     three  Hmes  faster  than  the  industrial  revoluHon   Index  Year  0  =  1   10 Carbon     producHvity     growth  required   2008–50   8 US  labor  producHvity   growth  1830–1955   6 4 2 0 0 10 20 30 40 50 60 70 80 90 100 110 120 130 Years   Source:  Beinhocker,  et.  al.  (2008)  
  39. 39. But  no-­‐one  today  is  close  to  required  carbon   producHvity   Carbon  producAvity  2007,  177  countries,  all  GHGs  excluding  LULUCF   Adjusted  for  purchasing  power  parity,  2050  target  =  $13,300  GDP/tonne   Carbon   producHvity   US$  000  (PPP)/ tCO2e   5.5 5.0 Saint  Kirs  and  Nevis   Switzerland   MauriHus   4.5 Bangladesh   4.0 Sweden   Sri  Lanka   Norway   Average  carbon   producHvity   3.5 France   3.0 2.5 Japan   Austria   2.0 Indonesia   Turkey   Germany   Mexico   Brazil   South  Korea   Iran   Australia   Venezuela   Saudi  Arabia   1.0 Nigeria   0.5 Liberia   0 Canada   United  States   Qatar   South  Africa   Russia   0 5 Turkmenistan   China   10 15 G8+5   Singapore   Italy   Pakistan   1.5 India   United  Kingdom   20 25 30 35 Prosperity   GDP  per  capita  US$  000  (PPP)    Source:  WRI  CAIT;  UNFCCC;  Global  Insight;  McKinsey  analysis   40 45 50
  40. 40. Carbon  producHvity  has  increased  over  Hme,  but  not   nearly  quickly  enough   *    5-­‐year  running  average.  Emissions  data  includes  CO2  from  fossil  fuels  and  cement,  with  projecHons  for  CO2  from  land  use  changes  and  five   non-­‐CO2  gases  (CH4,  N2O,  HFCs,  PFCs,  and  SF6)      Source:  IEA,  CDIAC,  OECD,  EPA,  CEC,  World  Bank,  US  Bureau  of  Economic  Analysis,    McKinsey  analysis  
  41. 41. Technology  will  help  –  but  we  need  to  accelerate   innovaHon  and  buy  Hme    Source:  Farmer,  et.  al.  (2013)  
  42. 42. Some  hypotheses  for  climate  policy   •  Climate  change  is  far  riskier  then  convenHonal  models  lead   us  to  believe   –  Fat  tails,  irreversibility,  path  dependence,  etc.   •  Carbon  prices  may  be  necessary  but  not  sufficient   –  EffecHveness  of  price  signals  in  noisy,  complex  markets   –  Industrial  revoluHon  not  triggered  by  spike  in  labour   costs  alone  –  broad  socioeconomic  phenomenon   •  Need  to  broadly  change  the  “fitness  funcHon”  of  the   economy   –  RegulaHon,  standards  (e.g.  consumer  and  worker  safety   laws  early  20th  c.)   –  Behaviour,  social  norms  (e.g.  slavery,  smoking)   •  Policy  and  poliHcs  for  homo  realitus  vs.  homo  economicus   -  The  revenge  of  poliHcal  economy  and  human  behaviour  
  43. 43. Some  hypotheses  for  climate  policy  (cont.)   •  Social  technology  innovaHon  just  as  important  as  physical   technology   –  InsHtuHons  (e.g.  green  banks?)   –  Laws  (e.g.  carbon  fiduciary  responsibility?)   –  InformaHon  (e.g.  climate  risk  disclosure?  GDP  measures?)   •  Must  accelerate  evoluHonary  innovaHon  process   –  VariaHon  –  dramaHcally  increase  shots  on  goal   –  SelecHon  –  bias  fitness  funcHon  toward  low  carbon   –  AmplificaHon  –  capital  and  talent  flows  to  low  carbon   –  CreaHng  green  innovaHon  clusters   •  We  need  to  buy  Hme  for  tech  progress   -  Role  of  natural  gas  as  bridge?   •  InternaHonal  cooperaHon  needs  to  emerge  borom-­‐up  rather   than  top-­‐down   –  EvoluHon  of  trade  regime  vs.  “Rio  Dream”  and  Copenhagen  
  44. 44. Summary   Industrial  RevoluHon  enabled  a  third  of  the  populaHon  to  escape  the   Malthusian  trap  of  poverty,  hardship  and  disease       But  it  created  our  next,  and  possibly  last,  Malthusian  trap  –  climate   change       Escaping  that  trap  will  require  a  low-­‐carbon  revoluHon  on  the  scale  of   the  Industrial  RevoluHon,  but  at  three  Hmes  the  speed       Economic  revoluHons  are  profoundly  disequilibrium  phenomena                 –  not  explained  well  by  neoclassical  theory       A  complex  systems  view  helps  us  understand  the  evoluHonary   processes  that  drive  disconHnuous  innovaHon  and  growth       Climate  policies  should  acHvate  and  leverage  economic  evoluHonary   processes  –  policymakers  need  new  ideas,  there  is  much  work  to  do!  
  45. 45. ‘We  cannot  solve  problems  by   using  the  same  kind  of  thinking   we  used  when  we  created  them.’     ALBERT  EINSTEIN   Unless  we  truly  understand  the  system   we  are  dealing  with  we  will  fail     We  cannot  afford  to  fail     But  if  we  can  more  deeply  understand   that  system,  we  just  might  succeed  

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