Category: Economics

Matters of money

Global fertility and the climate crisis

Foreign Affairs has an interesting article on “The Age of Depopulation: Surviving a World Gone Gray“.

It describes several hypotheses for explaining the reduced fertility rates and falling populations almost all over the world, but emphasizes that women simply voluntarily don’t want to have as many children:

Pritchett determined that there is an almost one-to-one correspondence around the world between national fertility levels and the number of babies women say they want to have. This finding underscored the central role of volition—of human agency—in fertility patterns.

Personally, I wonder if the ecological crisis is a major background psychological cause. To everyone who is paying attention, the unambiguous message from scientists and policy experts is that we are destroying our own civilization and the capacity of the Earth to support us through our selfish and short-sighted determination to turn burning hydrocarbons into dollars. Even when it comes to my own life, I am profoundly afraid that prosperous, open, and advanced societies will cease to exist as the ecological basis for our entire civilization collapses. I think there is a decent chance – if I live until 2060 or so – that the young people in that time will look at photos of the produce sections in our supermarkets and be unwilling to accept that they were ever real: that we had so much bounty, such tremendous gifts from nature, and we squandered it all because we allowed psychopaths to rule us. It’s even worse than that in democratic societies: we demanded that psychopaths rule us, because we are unwilling to accept the truth of our situation.

Having children when you expect the future to be chaos demands an even greater act of faith from prospective parents. I would say that if we do want more children (which is questionable) we need to stop acting as though the future is something which we can and should destroy for the sake of our near-term ease and convenience.

Related:

Game theory and the limits of reason

I myself suffer from a morbid sense of despair, and even now, decades after I worked with von Neumann, I still find myself questioning our central tenet: Is there really a rational course of action in every situation? Johnny proved it mathematically beyond a doubt, but only for two players with diametrically opposing goals. So there may be a vital flaw in our reasoning that any keen observer will immediately become aware of; namely, that the minimax theorem that underlies our entire framework presupposes perfectly rational and logical agents, agents who are interested only in winning, agents who pose a perfect understanding of the rules and a total recall of all their past moves, agents who also have a flawless awareness of the possible ramifications of their own actions, and of their opponents’ actions, at every single step of the game. The only person I ever met who was exactly like that was Johnny von Neumann. Normal people are not like that at all. Yes, they lie, they cheat, deceive, connive, and conspire, but they also cooperate, they can sacrifice themselves for others, or simply make decisions on a whim. Men and women follow their guts. They heed hunches and make careless mistakes. Life is so much more than a game. Its full wealth and complexity cannot be captured by equations, no matter how beautiful or perfectly balanced. And human beings are not the perfect poker players that we envisioned. They can be highly irrational, driven and swayed by their emotions, subject to all kinds of contradictions. And while this sparks off all the ungovernable chaos that we see all around us, it is also a mercy, a strange angel that protects us from the mad dreams of reason.

Labatut, Benjamin. The MANIAC. Penguin Random House, 2023. p. 144-5. (italics in original)

Reading Kahneman’s Thinking Fast and Slow recently, at several points I was struck by what seemed like the unjustified assumption that people are competent at mental arithmetic. Specifically, that you can give a person a list of probabilities and payouts and then find it legitimately surprising that they can’t or don’t pick the best one. For people constantly immersed in calculation this may be puzzling, but I also have personal experience of highly intelligent and knowledgeable people struggling at (or being unwilling to even try) calculating what a certain percentage of a number is, like for a tip. Studies on the numerical literacy of the general public reveal a worrisome inability to properly gauge millions against billions.

When mathematicians, logicians, and game theorists forget that much of the population cannot or will not calculate, they miss the obvious cause of deviations from their predictions and theories.

Everyone is still developing fossil fuels

As my recent blackboard talk emphasized, climate stability means fossil fuel abolition. Arguments to the contrary are cynical mechanisms to keep the petro profits coming, regardless of the consequences for the climate.

Unfortunately, despite endless talk about ‘net zero’ and ‘ensuring’ climate stability, essentially everybody is still chasing fossil fuels:

Remember: it takes decades for the full effects of our greenhouse gas pollution to be fully manifest. That means much worse is still to come, even if we start making the right choices, and a nightmare looms if we persist with our current approaches.

Hale on why climate stability advocates are often confounded

The combination of uncertainty and low salience, in turn, enables obstructionism, the ability of interests tied to the status quo to maintain their interests. Consider the hurdles of a policy entrepreneur would have to overcome to create and implement a policy addressing a problem with distant effects like climate change. First, that policy entrepreneur would have to herself see value in pursuing an obscure issue, one that is unlikely to garner her a quick win and the associated political benefits. Few will have incentives to pursue such causes. Second, she would have to mobilize a sufficient coalition of interests to be able to influence policy. This would require each of those interests choosing to focus on a distant topic over their more urgent priorities. Third, this interest coalition would need to force the issue onto the broader political agenda, competing for limited space with numerous immediate priorities. Fourth, the coalition would need to somehow overcome, compensate, or neutralize political opponents.

To the extent those opponents are worried about the short-term costs of action, everything that is hard for the long-sighted policy entrepreneur will be easy for them. Opposing long-sighted policy—that is, promoting short-term outcomes—will give them the opportunity for quick wins on issues that are relatively easy to mobilize interests around. And even if the long-term-oriented policy entrepreneur wins a battle, she must preserve and maintain those gains permanently, as opponents will seek to reverse any defeats they face. A one-off victory may be important, but long problems often require sustained policies over time, while it only takes one victory by opponents to block them. The longer a problem’s effects reach into the future, the more friction the policy entrepreneur will face at every stage, and, should she get a win, the more enduring her victories will need to be.

Hale, Thomas. Long Problems: Climate Change and the Challenge of Governing Across Time. Princeton University Press, 2024.

Related:

Humans struggle with allocating losses

Canada seems to have a weird atmosphere of being in a recession, but without that term being used and without the definition (in terms of GDP growth or contraction) being met.

This starts to make more sense when you see that the GDP growth is largely the result of population growth and growth in the labour supply – not increased output per worker. GDP per capita was $58,304 in Q1 of 2020 and $58,111 in Q4 of 2023. Meanwhile, according to the Bank of Canada’s inflation calculator, inflation has averaged 4% per year over the span, so C$100 in 2024 buys what C$85.48 would have bought in 2020. The average Canadian is getting poorer, even with all the stimulus that was given out over the pandemic and with all the new debt which has been accumulated. I personally think governments have been pulling out all stops to keep asset prices (especially stocks and houses) high since the 2008 financial crisis, with very little consideration of what those measures are doing to the non-affluent and those in future generations.

This is worrisome both in the immediate context and as a broader signifier. Daniel Kahneman’s Thinking Fast and Slow stresses how people experience gains differently from losses, and find a loss of any size more aversive than they find a gain of that size pleasurable. He comments on the social and political implications:

If you are set to look for it, the asymmetric intensity of the motives to avoid losses and to achieve gains show up almost everywhere. It is an ever-present feature of negotiations, especially of negotiations of an existing contract, the typical situation in labor negotiations and in international discussions of trade or arms limitations. The existing terms define reference points, and a proposed change in any aspect of the agreement is inevitably viewed as a concession that one side makes to the other. Loss aversion creates an asymmetry that makes agreements difficult to reach. The concessions you make to me are my gains, but they are your losses; they cause you more pain than they give me pleasure. Inevitably, you will place a higher value on them than I do. The same is true, of course, of the very painful concessions you demand from me, which you do not appear to value sufficiently! Negotiations over a shrinking pie are especially difficult, because they require an allocation of losses. People tend to be much more easygoing when they bargain over an expanded pie. (p. 304)

Globally, this pattern is alarming too. Humanity is choosing to persist in activities which we know will cause catastrophic climate change, loss of wealth, and unprecedented damage to the natural world which sustains us. We are also massively failing to invest enough in non-fossil energy sources to retain our current standard of life. This is setting us up for brutal inter- and intra-national fights over allocating losses.

Related:

Kahneman on risks from excess confidence and optimism

Organizations that take the word of overconfident experts can expect costly consequences. The study of CFOs showed that those who were most confident and optimistic about the S&P index were also overconfident and optimistic about the prospects of their own firm, which went on to take more risk than others. As Nassim Taleb has argued, inadequate appreciation of the uncertainty of the environment inevitably leads economic agents to take risks they should avoid. However, optimism is highly valued, socially and in the market; people and firms reward the providers of dangerously misleading information more than they reward truth tellers. One of the lessons of the financial crisis that led to the Great Recession is that there are periods in which competition, among experts and among organizations, creates powerful forces that favor a collective blindness to risk and uncertainty.

The social and economic pressures that favor overconfidence are not restricted to financial forecasting. Other professionals must deal with the fact that an expert worthy of the name is expected to display high confidence. Philip Tetlock observed that the most overconfident experts were the most likely to be invited to strut their stuff in news shows. Overconfidence also appears to be endemic in medicine. A study of patients who died in the ICU compared autopsy results with the diagnosis that physicians had provided when the patients were still alive. Physicians also reported their confidence. The result: “clinicians who were ‘completely certain’ of the diagnosis antemortem were wrong 40% of the time.” Here again, expert overconfidence is encouraged by their clients: “Generally, it is considered a weakness and a sign of vulnerability for clinicians to appear unsure. Confidence is valued over uncertainty and there is a prevailing censure against disclosing uncertainty to patients.” Experts who acknowledge the full extent of their ignorance may expect to be replaced by more confident competitors, who are better able to gain the trust of clients. An unbiased appreciation of uncertainty is a cornerstone of rationality—but it is not what people and organizations want. Extreme uncertainty is paralyzing under dangerous circumstances, and the admission that one is merely guessing is especially unacceptable when the stakes are high. Acting on pretended knowledge is often the preferred solution.

Kahneman, Daniel. Thinking Fast and Slow. Random House Canada, 2011. p. 262–3

Whose agenda are you devoted to?

I have never seen George Monbiot’s bettered as career advice, though it will not lead to an easy life. For instance:

What the corporate or institutional world wants you to do is the opposite of what you want to do. It wants a reliable tool, someone who can think, but not for herself: who can think instead for the institution. You can do what you believe only if that belief happens to coincide with the aims of the corporation, not just once, but consistently, across the years

Also:

How many times have I heard students about to start work for a corporation claim that they will spend just two or three years earning the money they need, then leave and pursue the career of their choice? How many times have I caught up with those people several years later, to discover that they have acquired a lifestyle, a car and a mortgage to match their salary, and that their initial ideals have faded to the haziest of memories, which they now dismiss as a post-adolescent fantasy? How many times have I watched free people give up their freedom?

What he cheers for and takes satisfaction from is inspiring too:

Most countries have a number of small alternative papers and broadcasters, run voluntarily by people making their living by other means: part time jobs, grants or social security. These are, on the whole, people of tremendous courage and determination, who have placed their beliefs ahead of their comforts. To work with them can be a privilege and inspiration, for the simple reason that they – and, by implication, you – are free while others are not. All the money, all the prestige in the world will never make up for the loss of your freedom.

Autonomy, not authority, is the only way to escape the many traps of the status quo.