A good capitalist ought to be an environmentalist
October 4, 2011
The Earth is humanity’s endowment. We mismanage it at our peril.
For millions of years, our planet has been able to provide more of every useful resource than our species could possibly consume. Famines existed, but they were temporary and could be overcome through proper risk management.
Back then, all our food came directly from the matrix of organisms that transform sunlight into calories we can consume. As long as the sun shone brightly and those organisms were not disturbed, our ability to live comfortably was guaranteed.
The sun and those organisms—the bacteria, plants, fungi, and animals—can be thought of as assets in an endowment portfolio that produces income each year that we use to satisfy our needs to eat and stay warm. If we do not systematically consume more than this endowment generates in income, it will last forever. The “yield” on our assets might be low but it has little variance. In a sense, it represents the true risk-free rate of return.
Agricultural technology allows us to extract additional resources from our endowment. In the short term this increases the observed yield on our assets so that we can support a higher standard of living for a greater number of people. The catch is that this reduces the size—and thus the longevity—of the endowment at an exponential rate. To illustrate, consider what happens when you try to maintain a standard of living of 10 units per period when your endowment can sustainably produce only 5 units per period:
Limitless abundance was reduced to wasteland after a little more than 15 periods. Of course, the actual situation is far worse because the population is still growing above its sustainable maximum. We are exponentially increasing our target yield, thereby accelerating the degradation of the planet’s resources. This is a recent development coincident with the invention of technologies that allowed us to literally eat our endowment.
The human population grew slowly, if at all, for most of our existence as a unique species:
The growth in the past two centuries has been extraordinary. This is not due to mere compounding but to the triumph of revolutionary technologies. Consider this log-scale graph of the human population:
The development of primitive agriculture enabled humanity to expand in number from about 8 million to about 100 million between 5000 b.c.e. and 500 b.c.e. This required the manipulation of the land to suit the needs of humans. In so doing, we deprived many other species of their habitats in order to benefit a privileged few: bovines, wheat, and rice.
While highly disruptive to some species, we were still able to coexist with our environment and rely on the sun for almost all our energy needs. Furthermore, our relatively small population and unsophisticated technology ensured that we could not eat animals to extinction if we wanted to. Moreover, we rarely chose to try.
Two innovations of the 20th century changed everything. Looking back, historians may view them with the same jaundiced eye as CDO-squareds.
Artificial fertilizers, invented by Haber and Bosch, increase crop yields but suck nutrients out of the soil and poison the water table.
Feeding corn to livestock (instead of grass) makes it possible to raise many more animals with a given amount of acreage but threatens the long-term health of the humans who eat them as well as those who do not.
These modern developments have created the illusion that the Earth can support a much larger population than it sustainably can, just as a Ponzi scheme appears more profitable than most other investments—until it collapses. So far, the use of technology to increase the yield on our planetary endowment has appeared to be quite successful. This has fooled some people into thinking that resource scarcity—the original problem of economics—is a myth.
The reality is that we have merely postponed the reckoning by finding new ways to extract finite resources out of our planetary endowment.
When the sun failed to provide us with enough energy we burned trees, coal, oil, and natural gas. Eventually these will run out, if we do not poison ourselves to death first.
When we ran out of grassland for our livestock we force-fed them grains they were never meant to ingest, crowded them into pens where they stand in their own excrement, and then pumped them full of antiobiotics so that they would not die of disease before being slaughtered. We are reaping the whirlwind with obesity, cancer, and diabetes.
Perversely, each of these innovations exacerbates the imbalance between the resources of the planet and the number of people living on it. They make it seem as if the Earth is capable of supporting more people than it truly can. This has led us—as a species—to live beyond our means: a current account deficit with the planet. The eventual return to equilibrium will be all the more painful as a result.
This story closely mirrors the recent history of the U.S. economy. As the nation matured, productivity growth slowed and the number of viable investment opportunities shrank. The Federal Reserve was faced with a choice between slower, sustainable growth, or a series of investment bubbles fueled by subsidized credit. They chose the latter option, and now we are facing the consequences.
Fortunately, the damage to our economy does not need to be permanent if we make the right choices. But if we extinguish our planetary endowment we will permanently doom the human race to a lower standard of living, if not extinction.