ENVIRONMENTAL AND NATURAL RESOURCE ECONOMICS (third edition)

by Tom Tietenberg; Harper Collins, 1992; ISBN 0-673-46328-1.

THE BASIC PESSIMIST MODEL

One end of the spectrum is defined by an ambitious study published in 1972 under the title The Limits to Growth. Based on a technique known as systems dynamics, developed by Professor Jay Forrester at MIT, a large-scale computer model was constructed to simulate likely future outcomes of the world economy. The most prominent feature of systems dynamics is the use of feedback loops to explain behavior. The feedback loop is a closed path that connects an action to its effect on the surrounding conditions which, in turn, can influence further action. As the examples presented subsequently in this chapter demonstrate, depending on how the relationships are described, a wide variety of complex behavior can be described by this technique.

Conclusions of Pessimist Model

Three main conclusions were reached by this study. The first suggests that within a time span of less than 100 years with no major change in the physical, economic, or social relationships that have traditionally governed world development, society will run out of the nonrenewable resources on which the industrial base depends. When the resources have been depleted, a precipitous collapse of the economic system will result, manifested in massive unemployment, decreased food production, and a decline in population as the death rate soars. There is no smooth transition, no gradual slowing down of activity; rather, the economic system consumes successively larger amounts of the depletable resources until they are gone. The characteristic behavior of the system is overshoot and collapse (see Figure 1.1).

The second conclusion of the study is that piecemeal approaches to solving the individual problems will not be successful. To demonstrate this point, the authors arbitrarily double their estimates of the resource base and allow the model to trace out an alternative vision based on this new higher level of resources. In this alternative vision the collapse still occurs, but this time it is caused by excessive pollution generated by the increased pace of industrialization permitted by the greater availability of resources. The authors then suggest that if the depletable resource and pollution problems were somehow jointly solved, population would grow unabated and the availability of food would become the binding constraint. In this model the removal of one limit merely causes the system to bump subsequently into another one, usually with more dire consequences.

As its third and final conclusion, the study suggests that overshoot and collapse can be avoided only by an immediate limit on population and pollution, as well as a cessation of economic growth. The portrait painted shows only two possible outcomes: the termination of growth by self-restraint and conscious policy—an approach that avoids the collapse—or the termination of growth by a collision with the natural limits, resulting in societal collapse. Thus, according to this study, one way or the other, growth will cease. The only issue is whether the conditions under which it will cease will be congenial or hostile.

The Nature of the Model

Why were these conclusions reached? Clearly they depend on the structure of the model. By identifying the characteristics that yield these conclusions, we can examine the realism of those characteristics.

The dominant characteristic of the model is exponential growth coupled with fixed limits. Exponential growth in any variable (for example, 3% per year) implies that the absolute increases in that variable will be greater and greater each year. Furthermore, the higher the rate of growth in resource consumption, the faster a fixed stock of it will be exhausted. Suppose, for example, current reserves of a resource are 100 times current use and the supply of reserves cannot be expanded. If consumption were not growing, this stock would last 100 years. However, if consumption were to grow at 2% per year, the reserves would be exhausted in 55 years; and at 10%, exhaustion would occur after only 24 years.

Several resources are held in fixed supply by the model. These include the amount of available land and the stock of depletable resources. In addition, the supply of food is fixed relative to the supply of land. The combination of exponential growth in demand, coupled with fixed sources of supply, necessarily implies that, at some point, resource supplies must be exhausted. The extent to which those resources are essential thus creates the conditions for collapse.

This basic structure of the model is in some ways reinforced and in some ways tempered by the presence of numerous positive and negative feedback loops. Positive feedback loops are those in which secondary effects tend to reinforce the basic trend. An example of a positive feedback loop is the process of capital accumulation. New investment generates greater output, which, when sold, generates profits. These profits can be used to fund additional new investments. This example suggests a manner in which the growth process is self-reinforcing.

Positive feedback loops may also be involved in global warming. Scientists believe, for example, that the relationship between emissions of methane and global warming may be described as a positive feedback loop. Since methane is a greenhouse gas, increases in methane emissions contribute to global warming. As the planetary temperature rises, however, it could release extremely large quantities of additional methane, and so on.

Human responses can intensify environmental problems. When shortages of a commodity are imminent, for example, consumers typically begin to hoard the commodity. Hoarding intensifies the shortage. Similarly, people faced with shortages of food commonly eat the seed that is the key to more plentiful food in the future. Situations giving rise to this kind of downward spiral are particularly troublesome.

A negative feedback loop is self-limiting rather than self-reinforcing, as illustrated by the role of death rates in limiting population growth in the model. As growth occurs, it causes larger increases in industrial output, which, in turn, cause more pollution. The increase in pollution triggers a rise in death rates, retarding population growth. From this example it can be seen that negative feedback loops can provide a tempering influence on the growth process, though not necessarily a desirable one.

Perhaps the best-known planetary-scale example of a negative feedback is provided in a theory advanced by James Lovelock, an English scientist. Called the Gaia hypothesis after the Greek concept for Mother Earth, this view of the world suggests that the earth is a living organism with a complex feedback system that seeks an optimal physical and chemical environment.

Deviations from this optimal environment trigger natural, nonhuman response mechanisms which restore the balance. In essence, according to the Gaia hypothesis the planetary environment is a self-regulating process.

The model of the world envisioned by the Gaia hypothesis is incompatible with that envisioned by the Limits to Growth team. Because of the dominance of positive feedback loops, coupled with fixed limits on essential resources, the structure of the Limits to Growth model preordains its conclusion that human activity is on a collision course with nature. While the values assumed for various parameters (the size of the stock of depletable resources, for example) affect the timing of the various effects, they do not substantially affect the nature of the outcome.

The dynamics implied by the notion of a feedback loop is helpful in a more general sense than the specific relationships embodied in this model. As we proceed with our investigation, the degree to which our economic and political institutions serve to intensify or to limit emerging environmental problems will be a key concern.

THE BASIC OPTIMIST MODEL

Is the portrait of the fate of the world economy painted by the Limits to Growth model an accurate one? Because Herman Kahn and his associates did not think so, they presented an alternative vision in a book titled The Next 200 Years: A Scenario for America and the World. 8 This vision is an optimistic one based in large part on the continuing evolution of a form of technological progress that serves to push back the natural limits until they are no longer limiting.

Conclusions of Optimist Model

The basic conclusion reached by this study is stated in the opening pages of the book [Herman Kahn, William Brown, and Leon Martel, The Next 200 Years: A Scenario for America and the World (New York: William Morrow, 1976)]:

. . .200 years ago almost everywhere human beings were comparatively few, poor and at the mercy of the forces of nature, and 200 years from now, we expect, almost everywhere they will be numerous, rich and in control of the forces of nature [p. 1].

The future path of population growth is expected by Kahn and his associates to approximate an S-shaped logistic curve. This image suggests that an omniscient observer during 1976 looking backward through time and then forward into the future would see rather different things. The retrospective glance would reveal a period of exponential population growth, while the glance into the future would reveal continued growth, but with steadily declining growth rates, until, at the end of the next 200-year period, growth would automatically come to a halt. By that time, however, the population would have increased four times its current level and the average person in the world economy would be earning $20,000 a year (in constant dollars)—a far cry from the 1976 average of $1300 (see Figure 1.2).

To Kahn and his associates, interference with this natural evolution of society would not only be unwarranted, it would be unethical. As they see it, tampering with the growth process would consign the residents of the poorest developing countries—and, indeed, the poorest residents of the developed countries—to a life of poverty, a life without hope. In contrast, they see continued growth as providing continued betterment for both groups; although, due to an expected decline in the gap between the rich nations and the poor, those in the poorest nations would benefit most from continued growth.

The Nature of the Model

The Kahn model is more qualitative than the Limits to Growth model and therefore its structure is less specific. It is not a computer program that simulates the future. Rather, Kahn and his associates devised scenarios they believed to be plausible and then verified that the various components of these scenarios were consistent with each other. The book is filled with reasons why the chosen scenario is reasonable. These lists of reasons frequently include new technologies that, when certain limits are reached, will be introduced. These technologies effectively either remove the limit or buy time until a subsequent technology can remove the limit.

The principles underlying Kahn's work can best be illustrated through the use of two examples: food and energy. One of the sources of collapse in the Limits of Growth model was the inability of food supply to keep up with consumption. Kahn, by contrast, sees food production rising so rapidly as to create an eventual abundance of food. This vision, in turn, depends on some specific sources of optimism: (1) physical resources will not effectively limit production during the next 200 years, and (2) substantial increases can be expected in conventional foods produced by conventional means, conventional foods produced by unconventional means, and unconventional foods produced by unconventional means.

All of these sources of optimism are related to technological progress. The availability of physical resources can be expanded through the use of better (solar-powered, for example) irrigation systems. Conventional food production can be increased by the spread of better farming techniques and by the development of new hybrid seeds. If soils become depleted or scarce, then food can be raised with hydroponics, a process using no soil. 9 Finally, Kahn points to the development of a single-cell protein as a viable means of converting municipal waste into a food supplement.

A similar approach is taken when describing the world energy future. The authors of The Next 200 Years construct a list of technologies that can provide the transition to solar energy, making the case that solar energy can ultimately sustain a high level of economic activity. The list includes technologies that use coal, either directly or indirectly (such as gas produced from coal); those which exploit the vast world reserves of shale oil; nuclear power (fission, in the near term, replaced subsequently by fusion); and new solar technologies including windmills, photovoltaics, and ocean thermal power.

When all of these lists are combined, the prevailing message is that currently recognized technologies can overcome the limitations envisioned by the Limits to Growth view. The Next 200 Years staff, then, believes that the creators of Limits to Growth erred in being myopic; they were too tied to conventional technologies. When the need arises, they argue, these new technologies will be developed. The cliche, "Necessity is the mother of invention," captures the flavor of the belief of Kahn and his associates that these technologies will be developed as they are needed. [p.p. 4-11]

[I believe this is the standard university text for this discipline. —JH]