Author: rolfgroeneveld

Why economists argue with ecologists (5): The Suzuki fallacy

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I quit smoking when I was about 30 years old. It is an unhealthy habit, of course, but I also disliked the idea of being dependent on my stock of tobacco. One of the few things I miss about smoking, however, is the excuse to go outside during a break and have a fag and a chat with a few likeminded nicotinists. So occasionally I go outside with the addicts and have the chat without the fag.

I did this a while ago with an ecologist who started a long complaint about economists’ ignorance of the limits of our planet. Economists, he claimed, refer to environmental problems as ‘externalities’: they think the environment is external, i.e. irrelevant, to the economy. I tried to convince him how he misunderstood what externalities are, pointing to his sigarette. It may be his own choice to light a cigarette, or something between him and his dealer to buy a pack of cigarettes, but I also had to inhale his smoke. The damage that he thus inflicted on me was a negative externality: a cost that did not show up on his mental ‘balance sheet’. Perhaps, if he had to pay a tax for each of my lost lung cells he would have made a different choice. (You know what they say: nobody is purer than an ex-prostitute.)

I doubt whether I convinced him, but in any case his comment had me thinking. Where did he get this ludricous idea that the economic term ‘externality’ means ‘irrelevant’? After all, every introductory microeconomics book has a chapter on how externalities are a form of market failure. Then I saw this clip.

My toes still cringe when I watch this – it’s just too embarrassing. When he talks about ecosystem services:

All of the things that nature does for us, for nothing. Pollination, for example, or a forest that takes carbon dioxide out of the air and puts oxygen back in, or that holds the soil and prevent erosion.

That’s the point where I would have expected an explanation that these services are unpriced, and that we should make those services visible in the market place. For instance, by putting a price on them in public decisions, or by levying environmental taxes, or through paying the owners of the ecosystems for the services they provide. But somehow he got it into his head that

All those services that nature performs, economists call them “externalities”. And what that means is: “they got nothing to do with the economy. We don’t put a price on them, they are irrelevant.”

The speaker, David Suzuki, is a famous environmentalist. He should know his stuff, but he is making these statements without a single speck of irony, and apparently he has been doing this for years. Of course there is lots of nonsense spouted on the internet and you don’t have to react to everything, but people like my smoking ecologist listen to David Suzuki. I don’t mind criticism of economic theory, in fact I think a lot can be improved. The nice thing about interdisciplinary work is that you learn not just about the contents of other disciplines, but also their way of doing science. And this reflects back on your own discipline. But such cooperation is not helped if people start spreading this kind of prejudice and misunderstanding about one of the fields involved.

Mapping marine economics (1): A planet walks into a doctor’s office

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Somewhere in the near future the wise men and women in Wageningen University’s tenure track Advisory Committee will decide whether I’m doing a good enough job to keep it. One of the things they may possibly ask is what my research will focus on in the coming, say, 15 years. So I’ve been thinking a lot lately about questions like “what on Earth am I doing?” and “where the Hell am I going?”

If you go to the doctor with a problem, the doctor will generally do four things. First, he will assess the seriousness of your problem. Second, he will try to identify the cause of your problem. Third, he will decide on the objective to be pursued by any therapy he may prescribe. Fourth, he will prescribe a therapy, which may be a pill, an operation, or something else. Economics of coastal and marine ecosystems is not much different:

  1. Economists assess how well or how badly coastal and marine ecosystems are doing, and how important they are to us. Should we worry about, say, disappearing mangrove forests? Who should be worried? (Ecologists hate these questions, but somebody has to ask them.) To answer these questions, economists try to put a price on ecosystem services, develop environmental indicators, or correct GDP for environmental degradation.
  2. Economists also investigate the fundamental reasons why we deplete, pollute, or overexploit ecosystems. If we all know how important fishery resources are to us, why are some stocks so terribly overfished? So economists develop theories of open access resources, of enforcement problems, corruption, and other forms of market failure or government failure.
  3. A lot of economic research is done to set the right policy objectives. How do we trade off the profits of a large-scale distant-water fishery against the interests of small-scale local fishers in a developing country? How do we trade off our own welfare against that of future generations? So economists have developed many applied optimisation models, and concepts such as Maximum Economic Yield.
  4. Lastly, economists also investigate how we can attain our policy objectives. Should we introduce restrictions on days-at-sea or Individual Transferable Quota to keep catches at an efficient level? Should we freely distribute fish quota, or auction them off? If we pay land owners not to cut a mangrove forest, will it really save that forest or will they simply cut another forest?

In future posts I’ll share my thoughts on each of these four issues.

Stuff I do: Pacific tuna

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Chances are you’ve thrown one of these on your barbecue this summer:

 Tuna is massively important for many Pacific island nations. Kiribati, a country whose land mass is only 0.02% of its total area (the rest is sea), gets about 30% of its GDP from tuna fishing. Not that the I-Kiribati (people from Kiribati, that is) catch much of that themselves: most of it is caught by fishers from other countries, like Japan, Spain, and the United States, who pay Kiribati for the right to fish in its national waters.

Actually, to just call it “tuna” is misleading, because there are several species of it. If you have ever had a tuna sandwich you will probably have eaten skipjack tuna. It is the cheapest, least tasty, but also the most abundant tuna species: the IUCN is not particularly concerned about it, and the FAO assesses we can catch some more of it without depleting its stock (pdf). The species in the pack in the picture, yellowfin, is doing less well: the IUCN labels the species “near threatened”, and the FAO argues against catch increases of this species. Other species are doing worse or much worse than that: bigeye tuna, for instance, is labelled “vulnerable” 1.

Save the apples, don’t eat pears
So we should all eat skipjack instead instead of yellowfin and bigeye, right? If only life were that simple. Yellowfin and bigeye are often caught as so-called bycatch of skipjack tuna. Many fishers use Fish Aggregating Devices (FADs) that attract all kinds of fish, starting from small fry all the way up the food chain to several species of tuna. When this includes a school of tuna, fishers draw a purse seine net around the FAD and haul in their bounty. Fishing this way, you are likely to catch a lot of skipjack, yellowfin and bigeye at once, where the yellowfin and bigeye you catch is probably still young and difficult to separate from the adult skipjack. And hence yellowfin and bigeye often end up in a tuna sandwich at a young age where they could have had a glorious career as sushi or tuna steak.

Therefore, the FAO recommends not to increase skipjack catches: not because it is concerned about skipjack stocks, but because catching more skipjack will likely have a negative impact on stocks of yellowfin and bigeye. So perhaps to preserve yellowfin and bigeye stocks, the last thing one should do is buy skipjack tuna.

Governments have used all kinds of different policy instruments to manage fisheries, such as days-at-sea restrictions, or individual transferable quota, or a variety of gear regulations. Such instruments, however, are not everywhere as easy to implement, and governments are in a difficult situation themselves. It is often difficult to observe how much fishers have caught. Moreover, if Kiribati limits its tuna catch in order to preserve tuna stocks for the future, fishers gladly move on to the next Pacific Island Nation to fish there. Perhaps retailers, NGOs, and consumers should step in? We could reward fishers who fish more selectively with some certification scheme: guilt-ridden consumers may be willing to pay some extra for guilt-free tuna. But what if that simply increases demand for fish, and thereby fishing pressure?



Note the neat batik BESTTuna shirts – courtesy of our Bogor partners

BESTTuna
Last week I was in Bogor, Indonesia, to discuss this problem with colleagues from Wageningen University and other institutes. We were at the kick-off of BESTTuna, a project of Wageningen University together with many other organisations, including Bogor Agricultural University, University of the South Pacific, University of the Philippines, University of California, Santa Barbara, WWF, and Anova Seafood. The objective of BESTTuna is to look deeper into the management problem with skipjack, yellowfin, and bigeye tuna, considering the different countries involved, the different fishing techniques, the companies involved, NGOs, fishers, and so on. Should Indonesia introduce individual tradable quota? Will MSC certification give fishers an incentive to fish sustainably or will it only enhance fishing pressure as green consumers can start eating tuna with a seemingly clear conscience? How can we make sure that Pacific Island Nations cooperate to manage their tuna stocks sustainably? It’s a complex, but therefore also fascinating problem – and it’s one of those problems you’re reminded of every time you enter the supermarket.

Footnotes
1
One of the most depressing cases of tuna overfishing is the southern Pacific bluefin tuna. It is currently at no more than about 15% of its 1973 stock. Bluefin, however, is quite a different story than the species I describe in this post.↩

Carbon is carbon, but water is not water and land is not land

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Besides the ecological footprint you might also have heard of the carbon footprint and the water footprint. Only carbon footprint makes sense; I criticized ecological footprint in an earlier post, but I did not mention another problem that also holds for water footprint.

Why do I think carbon footprint makes sense? It’s about one environmental problem: climate change. It’s about one type of pollutant, greenhouse gases such as carbon dioxide and methane, and it doesn’t matter where you emit them. Whether you burn coal in Las Vegas, Shanghai, or Maasbree: the radiative forcing of the greenhouse gases you emit is similar.

How different that is with water. Growing fairly thirsty crops in Las Vegas is a much bigger problem than growing very thirsty crops in Maasbree, simply because there is much more water in the Dutch province of Limburg than in the American state of Nevada. In Nevada you would have to extract groundwater to irrigate your crops, and you would have to extract a lot of it because a big part of what you spray on your crops will evaporate before your crops can drink it. The groundwater aquifers you extract your water from will take a very long time to be replenished. In Limburg, on the other hand, you can use water from the Meuse (which is what Maasbree is named after), and even if you extract groundwater there is plenty of rain and river water to replenish it. Nevertheless, the water footprint will simply look at water use or the thirstiness of your crops, so growing very thirsty crops in areas where there is plenty of water is worse than growing somewhat less thirsty crops in areas where water is very scarce. Water depletion is a local problem: you can’t compare Dutch water to Nevadan water. This problem does not hold for greenhouse gas because a Dutch ton of CO2 has the same effect as a Nevadan ton of CO2.

Ecological footprint has the same problem. Here the unit is not tons of carbon or liters of water, but hectares of land. With land it is important to consider the opportunity cost: if, say, you would use it to store carbon, what uses of the land would you have to forgo? In other words: if you would not use it to store carbon, what else would you have done with it? And then it turns out that it actually matters a lot whether we are talking about highly productive land in a well-drained and fertile Dutch polder or some remote wasteland with no biodiversity to speak of. Ecological footprint aggregates all land used by a person, a city, or a product, including the hypothetical hectares one would need to store carbon. Whether it is office space in the centre of Hong Kong, a highly diverse rainforest in Brazil, the fertile polder of Het Groene Hart or the barren desert of the Sahara: land is land, according to the ecological footprint. But it isn’t, just like water is not water.

How to cram the whole world in a small Dutch pub

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One of the greatest things about Wageningen is that you meet people from over the world. It’s a fairly small university, but it is very internationally oriented, so there is no escaping our international students and staff.

Some of them find themselves in a small pub on a Sunday afternoon listening to a couple of folks playing bagpipes, fiddles, hurdy-gurdies and other strange acoustic instruments. That would be me and my fellow musicians at the monthly traditional music session in Café De Zaaier:

//www.youtube.com/get_player

(I’m the one holding the camera.)

We have been doing this every month for more than 10 years now, and I know we should count ourselves very lucky. It’s the perfect setting for a traditional music session: the pub is a traditional ‘bruin café’ (literally “brown pub” – a type of Dutch pub named after its dark brown wooden interior) with a large collection of Dutch and Belgian genevers, many different beers (including Guinness and Kilkenny – Irish sessioneers seem to be quite keen on that) and the owner is a musician with a love for folk music. This being Wageningen, we have enjoyed the company of musicians and listeners from Mexico, the Czech Republic, Sweden, Eritrea, and, lately, the Basque country:

//www.youtube.com/get_player


Everybody is welcome to come and listen or to play along. All traditions are welcome – this diversity is one of the fun things! The only thing to mind are three rules:

  • We play ‘around the table’ so that all musicians get a chance to start a tune or a song;
  • It is better to play something simple you feel confident with than to play something difficult that you have to start over and over again. In other words: if you play, you play;
  • Feel free to join somebody else’s tune or song, but don’t overdo it, especially if you don’t know the song or tune.

Curious? We have a website where you can find all the details.

Two draft course documents

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What do you do when you need only one chapter of Perman et al., or Tietenberg, but you can’t reasonably ask your students to buy the whole book? You either distribute illegal copies, or you write the text yourself. Of course I’m a decent guy so I just posted two draft texts on my WUR website:

A very basic introduction to Stochastic Dynamic Programming
This is a text that I prepared last year for my lecture on stochastic dynamic programming in a course on the economics of natural resources. Dynamic Programming is one of the more elegant ways of presenting the problem of natural resource depletion: how much should we harvest now, and how much should we save for later? The problem is that most introductory texts in natural resource economics say little about DP, whereas the specialized texts on DP are too difficult technical.

Market failure and natural resource depletion
I co-teach a course on marine resource management where I explain the basic principles of natural resource economics to MSc students with almost no economic background. I have not yet found a text that explains natural resource economics in an accessible manner to this audience. So far this document only features the basics of supply, demand, consumer surplus, and producer surplus, but I intend to extend it in the near future.

Feel free to download, use, comment, etc.

My two hands, I mean cents, on Monbiot’s anti-valuation rant

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I am happy to say that James Delingpole and George Monbiot make my toes cringe in equal measure (don’t you think they even look alike?). Whether it’s about the leftist conspiracy to strangle the economy with cap-and-trade or the neoliberal commodification of our athmosphere by cap-and-trade, I always find it difficult to reach the end of their writings with the same blood pressure as when I started reading them.

This time it’s Monbiot who writes yet another econophobic rant against Payments for Ecosystem Services: pricing nature is wrong, PES is just a slippery slope towards privatisation of nature, without markets we wouldn’t be in this situation in the first place, blah blah blah.

Tim Worstall writes a rebuttal of Monbiot’s piece in The Telegraph (indeed, Delingpole’s home newspaper) where he makes two major points:

  1. If we didn’t try to estimate the value of nature in monetary terms, it would be priceless, which in today’s world means worthless (and hence, defenceless);
  2. It’s not the establishment of property rights, but their absence that is driving overexploitation of natural resources. Monbiot’s rejection of private property rights takes us back to the days when nature was a free-for-all, with all the depletion and extinctions that come with it.

Worstall’s second point is very valid, and I’m glad somebody is making it (although I doubt it convinces George “markets are evil and governments are saints” Monbiot). His first point, however, raises two question marks, making me feel somewhat like the proverbial two-handed economist.

On my left hand, I admit (albeit grudgingly) that Monbiot has a point: there are more reasons to preserve nature than just its contribution to the economy. It’s the classical dichotomy between utilitarian and deontological ethics: Worstall uses utilitarian arguments (show how important nature is and people will more likely preserve it), whereas Monbiot argues that it is simply morally right to preserve nature, because it has a value in itself regardless of how highly humans value it.

On my right hand (call it my Delingpole hand if you like), arguments like Worstall’s first point make me suspicious. Too much research in this matter is being done to “raise awareness”, “wake up the politicians”, or something like that. It makes for terrible, politically biased science that accepts any wild guess as long as it gives a big number. People still seem to believe the global ecosystem is worth $33 trillion, although any serious economist can tell you that this number as well as the method used to arrive at it (and, indeed, the sheer idea of calculating a total value of the entire ecosystem) is nonsensical: economist Michael Toman called it “a serious underestimate of infinity.” Moreover, when you price nature you should be aware that it may turn out not to be that valuable: perhaps it is still sensible to cut that forest and build a hospital instead. This is of course the outcome that folks like Monbiot dread; on the other hand, the folks who use the “raise awareness” argument gloss over it, or worse.

The bottom line is that economic valuation of ecosystem services is best done in the context of a concrete, well-defined policy question. Pricing nature improves that decision-making by making values visible that would otherwise be ignored, in a way that makes them comparable to goods and services that do have a market price. Prices can never tell the entire story (this is where I agree with Monbiot), but it is a laudable goal to make the cost-benefit analysis as complete as possible (which is where I agree with Worstall). But whatever you do, “raising awareness” is just about the worst reason to do it.

Why economists argue with ecologists (4): Economics and thermodynamics

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If you think environmental economists are a boring lot, look up this 1997 issue of Ecological Economics. It covers a debate between three economists on economic growth and the environment, but at times it reads like a transcript of a Jerry Springer show. On one side we have Herman Daly, one of the first ecological economists and co-founder of the journal Ecological Economics. On the other side we have Robert Solow and Joseph Stiglitz. Solow and Stiglitz are environmental economists, neoclassical economists, or mainstream economists, whatever you want to call them, although Stiglitz has lately turned into antiglobalists’ favourite economist due to his criticism of globalization.

The trouble actually started twenty years earlier, when Solow and Stiglitz pointed out that when we run out of one resource, we can substitute it by another one: when we run out of oil, we switch to natural gas; when gas runs out, we switch to solar energy; and so on. Because we can always invent better and more efficient ways of meeting our needs, the economy should be able to keep on growing for the foreseeable future, or perhaps even indefinitely. Not everybody agreed, and an economist called Nicholas Georgescu-Roegen wrote a scathing rebuke where he argued that not all resources will be as easily substituted: if we run out of fish, how will we make our paella? If we run out of oxygen, what will we breathe? The idea of eternal economic growth, he argued, violated the laws of thermodynamics. To put it very crudely, these laws state that although you could convert matter into energy (which is what happens in a nuclear reactor), or energy into matter (as happens in particle accelerators), it is impossible to create energy or matter out of nothing. Georgescu-Roegen accused Solow and Stiglitz of “ignoring the difference between the real world and the Garden of Eden” and of “conjuring tricks.” In the 1997 issue of Ecological Economics, Daly compares Solow to a medieval alchemist trying to turn lead into gold. You may not consider that particularly diplomatic, but Solow and Stiglitz pull no punches either. The opening sentence of Solow’s article reads

Dr Daly’s prose tends to dissolve at any moment into a dense cloud of righteousness. This makes it very hard to respond rationally to his performance.

Stiglitz’s reaction seems somewhat friendlier, until we get to the last few sentences:

No one, to our knowledge, is proposing repealing the laws of thermodynamics! Doing so would make as little sense as the act of one state legislature that thought that students’ intellectual resources could be economized by changing the value of π from the highly inconvenient 3.1416… to just 3.
In the end, we hope we have made our essential points, using somewhat fewer trees and other resources than Daly did in his 15-page note.

I will not go into all the arguments used in this debate now. There is a lot to be said about economic growth, too much in fact for one blog post. But that these people argue over the law of thermodynamics points towards another difference between ecologists and economists.

The laws of thermodynamics are central to many environmental sciences. Climate scientists include in their models the amount of heat the sun directs at the Earth, as well as the amount of heat that the Earth radiates or reflects into space: the difference is net warming, or net cooling. Biologists model animals as barrels of energy where energy goes in as food and goes out as movement and body heat: this helps biologists explain under what circumstances a species thrives and when it goes extinct. Whatever the system, if there is energy or matter coming out of it, the same amount must also be going in somewhere, or the system is either collecting or losing something. No wonder ecologists are critical of economic growth: if you produce more, it must be because you are losing something somewhere else. So how can these economists claim that we can produce ever more with ever less inputs?

Like Stiglitz says, no economist proposes to repeal the laws of thermodynamics: they govern how we can convert raw materials, energy, and labour into cars, computers, and so on. In other words, they would apply if we were talking about producing ever more stuff. But economics does not necessarily deal with stuff, but with the value of that stuff. And believe it or not: it is possible to create value out of nothing, and to make it disappear into nothing.

In fact it works a lot like information. A while ago I read a rather strange question in Intermediair, a Dutch career magazine: does a USB stick get heavier when you load it with data? The answer, of course, is no. To a computer, a USB stick is like an Etch-A-Sketch: it uses it to write things down by moving stuff around, not by adding stuff. A USB stick contains loads and loads of switches that can be either turned ‘on’ or ‘off’ (if I’m not mistaken, my 16GB USB stick has 134,217,728 of them). A computer ‘reads’ the information on a USB stick by observing which switches are ‘on’ and which ones are ‘off’. Together, these switches can contain the latest Ufomammut CD, a movie of your PhD defense, or your illegal copy of Matlab. Put these files on your USB stick, and the USB stick has become a lot more valuable to you. How often do you read that some official has lost a USB stick with sensitive data? And this is all possible without changing the mass, nor the energy contained in the USB stick. (OK, to be honest, there may be some swapping of electrons between the stick and the computer, but that is negligible.) But leave it near a strong magnetic field and all your data are lost. And the USB stick has become worthless.

I sometimes get the impression that ecologists tend to treat value as they would treat the number π, or the density of some material, or the temperature of a body. Some studies measure it for a few samples and then aggregate them over the entire planet. And the folks who cite those studies seem to assume it remains unchanged over time. But value is a strange concept. Ever wonder why water is so much cheaper, yet so much more important to human life than gold? Value also varies between individuals and over time. You may not give a rat’s ass for Trout Mask Replica, but there are folks out there willing to lose an eye for an original vinyl copy. Likewise, is there anyone who still listens to The Sweet? I mean, seriously?

Granted: so far economies have grown partly because we are getting more effective at extracting and using ever more inputs, and thereby producing ever more stuff. This is something we cannot keep doing indefinitely: resources are finite, the amount of solar energy our planet receives is finite. There is only so much stuff you can produce, period.

But economies also grow by producing more value with the same inputs, by tayloring products to people’s wishes ever more precisely, or by enhancing the efficiency of production. How long we can keep that up is lot more difficult to say.