Feedback loops and inertial blindness

In between reading about the decline of western civilization due to economic collapse, I like to lighten up and learn about the coming decline of global civilization due to environmental collapse.

Recently, it's become clear that common sense can go a long way toward understanding a complex world. Models and world leaders could not predict the current state of our economy, but if you think carefully about whether people can accumulate debt forever, some things become more clear. Jane Jacobs was a successful intellectual who observed and experienced reality and reported on it and theorized anew based upon it. She had little formal training, but she's been proven dead right on urban planning.

So, I'd like to offer two theories based not in math, but in observation of the economy and ecology.

Ecology and the economy are closely related. A hundred years ago, much of Canada's GDP was a measure of things that grow in dirt, livestock that eat those things, the harvest of trees and other organic material, and the mining of minerals and other deposits. In other words, our wealth closely approximated things we took from the Earth.

Today, we have a service economy, and this is underpinned by Paul Romer's theory of endogenous growth; ie. economies grow because they generate technological change, which makes things more efficient. Today, we take more corn, trees, deposits and livestock off of the land, but it's a fraction of our economy; in the large part, we design better fuels, improve the lay-out of cities, improve the rubber in tires, invent information technology and cure pot-holes. We incrementally improve the efficiency of society, all while freeing more people to spend more time thinking up more improvements.

This is called a positive feedback loop, where "positive" is not a moral phrase. In fact, dire ecological predictions are underpinned by positive feedback loops; in the podcast behind the Gwynn Dyer link above (and here), three such positive feedback loops are named around global climate change:
  • the melting of the polar ice caps, which has visibly started and cannot be disputed by people looking at them, removes an essential and quite big "Earth mirror" and replaces it with the Arctic equivalent of a black driveway.
  • the melting of glaciers will release ancient stores of methane gas, which is 10-times worse as a greenhouse gas than C02
  • as oceans warm, their capacity to absorb CO2 will decrease.
Each of these phenomena require a small trigger -- such as our global output of greenhouse gasses -- and they will then feed upon themselves, and each other, far beyond the capacity of our total economy to exert control. When you start to enter a black hole, you cannot get out.

Economically, the credit crisis was also a positive feedback loop, with the collapse in home prices starving consumers of their raison-de-spend, causing layoffs and further bank failures, accelerating the cycle. It really doesn't matter what the trigger is when you've been absent-mindedly storing pails of gasoline in your living room.

Tragically, the economic and ecological loops could trigger a third, political positive feedback loop. Should the ecological loop trigger migrations from equatorial areas, refugee issues arise just as the economic loop triggers civil unrest generally. Governments that should be tackling the first two feedback loops will be distracted trying to reverse the political loop. At just the moment when we need a belle epoque to create regulatory and technological solutions to these problems, we will have the least capacity to do so.

Now, in case you have a gun in your mouth, you may want to read a little further. I'm asking you to consider a second effect, which I'm calling inertial blindness.

Let's say that you want to build a party town somewhere in the Nevada desert. You require water, so you invest in technologies to draw the water from ancient sources deep underground and over time this water enables your manufactured city to generate billions of dollars in both private wealth and tax revenue. But as your city grows, your annual draw on the underground water supply becomes significant. Although your economic growth continues, you're creating an ecological deficit in doing so and the situation becomes absurd. That it continues can only be evidence of both blindness and inertia. No rational person would build a large city on top of a 10-year water supply, but inertial blindness allows this. No rational person would try to build the CN Tower 10,000 feet high, just because at 1800 feet things were going so well.

Borrowing to consume some goods is an interesting strategy, especially for a young person who needs a house and a car before s/he can pay for these things. But what if the inertia of this consumption continues into the realm of blindness, to where consumption-beyond-means occurs because not doing this is harder than doing it (also, see Sacco).

The oceans have absorbed roughly 30 per cent of CO2 emissions since the start of the industrial age. But we are inertially blind to the fact that they cannot absorb infinite CO2 emissions. At best, they will stop absorbing these emissions; at worst they will become emitters themselves. Inertial blindness may lead us to turn 70 per cent of the Earth's surface into a smoke stack.

When borrowing and consumption slackened in the early 1990s, quantitative minds who were financial experts engineered new financial products, capable of extending growth. Again, this was inertial blindness -- it was anything but real growth, but it allowed the real growth to transition into theatrical growth. Following 9/11, theatrical growth was accelerated with more creative mortgage products and low interest rates. (Note bene, we did get the Segway out of this decade).

I'm writing all of this because I think it is essential that we develop models -- more sophisticated than I'm capable of creating now -- which identify and isolate these two phenomena, allowing policy makers to kill their causes. It is important that the national conversation (again, what a terrible phrase) include terms that mean what I mean when I say positive feedback loop and inertial blindness. We need to know when we're cutting down the last tree on Easter Island and when we're switching from tree-based energy to alternative energy. We need to know when growth is real and when it is a stage play in a dark theatre.

It is just shocking that the top people in our society did not know these things.


February 24, 2009 at 1:34 PM Anonymous said...

Worse than not knowing, I believe more and more, that leaders did know and believed nothing effective could be done. Greenspan was interviewed recently on CNBC for a special called "House of Cards" and his belief is that there was nothing he could do about what has happened. There is nothing that can be done by government to prevent or ameliorate the effects of what has happened.


He says it will happen over and over again through history and it is due to a flaw in human nature called greed.

This makes me so angry. It is an offshoot of the ideology of the right that free markets are always the best thing when it comes to the economy and that government intervention is NEVER better.

In Canada we have rgovernment rules regarding extending mortgages. The borrower is required to have a job earning enough money to carry the payments. A person needs to put down a 20% deposit and if other requirements are met then the bank will lend you the other 80%. Defaulting on your mortgage is an unpleasant prospect because it means you lose your deposit. These are simple common sense rules that have been in place for decades and are better than the rules or lack of them that have applied over the last 8 years in the US. They are simple and not an honerous brake on the economy at all.

Listen to the whole special if you can. It's assorted managers at different levels of the banking and mortgage system all abnigate responsibility for their parts in this fiasco. One fellow says he continued to lend money to people he knew could not pay. He continued to bundle and sell these mortgages as asset backed financial instruments by people in New York who knew they would eventually default, who then sold them around the world to people who they knew in the end would lose a fortune. And they all say they did it because it they tightened their rules then their business would stop and others would get all the business. This is what underlies the feedback loops. No-one takes any responsibility.

Does this not beg for a referee to apply a common set of rules to everyone simultaneously? Is that not the role of government?

And the more I think of this, what is the difference between this kind of thinking and that of German citizens in the 1930s who all said they were not responsible for the acts of the Hitler government and the creeping destruction of human rights throughout that society. JJ