Asymmetrical Information

From the desk of Jane Galt:

Demosthenes thinks my assertions that

Demosthenes thinks my assertions that really cutting emissions would mean cutting back to much lower levels of standard of living are funny, ha ha. Of course, he doesn't have any facts or numbers to back this up (or if he does, he hasn't shared them with me); just his insouciant certainty that it can't be all that hard to make radical changes in an economy the size of ours. Well, Demosthenes is about to find out why it's not a good idea to make fun of MBA's about things with numbers. Because now we're going to see what an MBA's idea of fun is.

Which is to say, running the numbers and seeing how they come out. When quant jocks argue with each other, the usual response is for the better informed one to chuck a file full of data at the offender and say "you do the math". In this case, I'm not sure my detractors can, so I've done it for them. Oh, Demosthenes, it didn't have to be this way. Really it didn't. And next time, when I say something about GDP, I have a feeling that Demosthenes is going to trust me.

Methodology
This section is only for the people who are going to pick through it so that they can
a. (Liberals) Scream that my treatment of the transition from GNP to GDP in 1955 invalidates everything I say
b. (Conservatives) Pick through every decision I made with a fine-toothed comb for the sheer joy of proving someone else wrong.

If you must read this section, turn off any heavy machinery you may be operating. Do not mix with alcohol. And if you are doing something important, like heart surgery, or inventing the next furby, maybe you should put off on this. Like, 'til you retire.

My methodology is extremely crude; I'm sure others can pick holes in it at their leisure. But in the main, it seems pretty solid to my humble eyes. I downloaded, from the National Bureau of Economic Research, and Free lunch (both very cool sources of free economic data compiled from government sources. I mean, if you think that such things as free economic data are cool. Oh. . . it's just me, then. That's okay. If you invite me to your parties anyway, I'll just stand behind the bar and pour drinks, and I promise I won't try to talk to anyone.)

For standard of living, I've used per-capita GDP. Yes, I know it doesn't capture all the intangibles of clean air and such, but our air is cleaner than it was in 1950, we live longer, etc. It is, as far as I am concerned, an adequate proxy.

I wanted to get the GDP data and the population data from the same source (the BEA), so I annualized quarterly GDP figures with a non-weighted average of the quarterlies. It's not exact, but the differences are, for my purposes, trivial.

GDP data is only available from 1947 on, so 1947 is our starting year for the numerical analysis, although I did use one figure, population for 1900, from the BEA source.

I downloaded a terrific spreadsheet from the Carbon Dioxide Information Analysis Center, another government site, showing carbon emissions from all the countries they could get data on since 1791. It's fascinating -- and not only for the emissions data, but because there are sad little pieces of the spreadsheet which show historical data, like that for "Unified Korea" until 1947, that illustrate that CO2 isn't the only footprint industrial society has left. I used their number for net CO2, which includes fuel and industrial uses such as cement production, but not things like people breathing, which is fine because I don't think any of my readers want to see a plan to cut down on the latter sort of emissions.

Carbon emissions data ends in 1998, so that's where my calculations end.

Using these three basic numbers -- population, CO2 emissions, and GDP -- I proceeded to extrapolate some figures. The full spreadsheet can be found here.

Highlights from the Data
So, what did we find out? That GDP used to be very damn low, for one thing. Also, you don't realize, emotionally, how devastating the Great Depression was until you realize that per-capita GNP was virtually the same in 1940 as it was in 1930 -- and as it was in 1919. In 20 years, the economy had gone nowhere. On the other hand, GNP more than doubled during WWI.

(Note: The primary measure of national income prior to the 50's was Gross National Product. We now use Gross Domestic Product. The differences, for our purposes, are trivial. I would explain it to you, but you're already having difficulty staying awake. Also, before I get the inevitable crank who emails me to tell me that of course I can't compare 1900 to 1998 because of inflation, the numbers are calculated in constant dollars; in other words, the GNP number approximates, on average, the purchasing power of 1900's GNP today. 'Kay?)

The summary numbers are (drumroll please):

That's right: per capita income in 1900 was around $2500.

Try this little excercise. Take your, personal family income. Now, multiply per-capita GDP by the number of people in your household. Then divide your income by your family's "share" of GDP. That's going to be your income multiplier.

Now, multiply 1900's GDP by the number of people in your household. Then multiply that number by your income multiplier.

The result is how much money you would have had to live on in 1900 -- in today's dollars. Our great-grandparents were poor.

They also emitted a fair amount of carbon -- although, of course, not nearly as much as we do. Now let's look at a few charts. Yeah, charts! I hear you cry. The clapping and cheering are ringing in my ears. I know, there's nothing more fun on a gorgeous Saturday afternoon than charts -- and have I got some great ones for you!

First, let's look at per-capita GDP growth since 1947. Why 1947, you ask? Well, because that's the year that I could get GDP data from, and while the differences between GDP and GNP are fairly trivial, I wanted to work with a single, continuous data set. If you're interested in finding out what our ancestors were doing before 1947, download the spreadsheet and enjoy the full majesty of the various data sets for yourself.

And what is Per-Capita GDP? It's the number of GDP's you have for every capita, of course. Tee-hee! If I only amused you guys as much as I amuse myself. No, seriously, it's the amount of national income divided by the number of people -- each citizen's "share" of GDP. It's a good approximation for standard of living. So let's take a look:

We've gotten richer since 1947. Much richer. But let's look at that little pink band. What is it, you ask? That's the period from 1973-1983, I reply. And why is it accented in pink? Because for people who are interested in the potential for reducing carbon emissions, that's a veyr interesting period; it's the impact of the oil shocks and the subsequent runaway inflation which (I would argue) was a result of the oil shocks as much as monetary policy. Now, if we look at the graph of our per capita GDP per ton, we can see that prior to 1973, there was a long run-up of per-capita carbon emission (the pink section illustrates the same time period on each graph) and then a precipitous drop following the oil crisis:

Notice anything about the two graphs? GDP was stagnant as hell. It's even more striking if we graph per-capita GDP on a logarithmic scale. Why would we do this, you ask? Well, because a $1,000 change in GDP is more important if GDP is $10,000 than if it is $100,000. Log scale charts allow us to think in relative changes rather than absolute changes. Clear? It will be. Look at the log scale chart:

As you can see, at the same time as per-capita carbon emissions are dropping, so is growth. Or maybe you can't see it if you're not used to staring at these charts for hours on end until your eyes glaze over and your tongue dries out and your nails bleed from biting them while you wonder what you can possibly find to say about the performance of the poultry industry during the great Salmonella crisis of 1974 that hasn't been said 800 times before by people who are smarter than you, and prettier, and sit in the front of the class with their shiny little palm pilots, hurling their hands in the air before the teacher has finished the question. . . . oh, excuse me, are you still here? Anyway, for those who aren't used to looking at the charts, I've taken the liberty of drawing straight lines through the starting and finishing points of per-capita GDP for the relevant period, and done the same for the 10 year periods before and after. And I'm sure you're staring at the page and thinking. . . how nice that she has a hobby. Aren't they supposed to teach them woodworking or something before they release them into the community? No, really, take a look:

As you can see, the band we're interested in is much smaller than the one either above (after) or below (before) it. What does that tell us? It tells us that the drop in per-capita carbon emissions was correlated with a drop in GDP growth, even though we were increasing our carbon efficiency, per dollar of GDP, like hell:

As you can see, while the overall trend in carbon efficiency per dollar of GDP is great -- we're using less than half as much carbon for each dollar of GDP as we were in 1947 -- the movement downward occurred primarily in two periods: immediately following WWII, when we switched from coal to oil for much of our fuel, and during the oil crisis. That's why although it's tempting to say that "Well, we increased productivity once -- we can do it again", it's dangerous. We'll never again see efficiency improvements like we got from the coal to oil switch unless we go nuclear (or discover some energy source I don't know about); for an explanation of why not, see this excellent piece on the efficiency of various energy sources. And the efficiency improvements following the oil shocks came after an enormous run-up in per capita consumption. We were driving inefficient boxes and otherwise wasting oil like hell; there's no reason to think that we can make similar improvements. And, as you can also see, even the efficiency improvements we made cost us, GDP wise.

The Payoff
Demosthenes and others are challenging my assertion that in order to get back to 1950 level carbon emissions, we'd have to get back to 1950 level GDP. (Actually, I said "near".) Am I right? Well, as I hope you now understand from the foregoing, GDP growth is extremely well correlated with CO2 emissions. Which makes total sense. CO2 comes from producing energy. And energy is, at the heart, the stuff that makes everything else, whether it's your body burning fuel to think up smart posts on global warming (and you produce C02 while you're doing this), or your automobile burning gas to turn the wheels to get you to work at the factory where the electricity from the hydro dam powers the machines that make all the cool stuff we use. Given that we don't all have a hydro dam in our backyard, more stuff requires more energy, which means more CO2.

So: how much would we have to cut our standard of living in order to get back to still-somewhat-worriesome 1950 levels of carbon emissions, or pretty-comfy 1900 levels? Let's do the math:

Sit down, my little green buddies. I'm sorry you don't like the answer, but that's the truth. We've increased our carbon efficiency amazingly since 1950 -- but we've more than doubled the population of the country. To get back to their levels of emissions, we would have to cut our standard of living in half. And think that's scary? Take a look at the implied standard of living if we cut back to 1900 levels:

Now I know what you're going to say: We'll just have to be more efficient. Of course we will, but that isn't free. All the inefficient equipment, from coal plants to old cars to god-knows-what's-lurking-out-there-in-the-dark-industrial-heart-of-America has to be replaced. And all the resources we use to replace all the plants and cars and what have you don't get used to make other stuff we want, like cell phones and heart/lung machines and really good wild mushroom pate.

People who say things like "Well, we can make our cars more fuel efficient while we look for the answer" are deluding themselves. First of all, there's a limit on how efficient cars can be made. The Honda Insight gets up to 70 mpg, if you drive it under the absolute perfect conditions with a naked jockey at the wheel and no luggage (not that you can fit any in anyway). Don't let him stop for a beer, either, or the mpg will go down.

This is not practical for, say, a family of five. Even if the dog stays home.

And other, less efficient vehicles are less efficient because, in large part, they need to be. Trucking firms, believe you me, pay close attention to the price of fuel. Now, I'm not saying that they're perfectly efficient, but if there were a painless way to get 10 mpg more on their trucks, they'd be doing it. Not only is it cost inefficient (please, stop nagging me about the negative externalities. I'm getting there); but also, you really don't want an underpowered 18-wheeler with a chemical trailer full of cyanide sliding back down the hill when you're behind him. The tradeoff for fuel efficiency is either weight or engine power. Very hard to drag that kind of efficiency out of a passenger car, after a certain point; damn near impossible when your truck might have to haul a heavy load over, say, Wolf Creek Pass.

Renewables? Honey, they just aren't there. We're out of hydro sites. And as for the others, forget cost -- where are you going to put the solar panels to power New York City? Electricity doesn't travel well, and it's a bitch to store; you can't make the power in New Mexico and ship it to New Jersey. Nor can you put a major urban area on a power source that is highly variable for its base load. Oops, guys, it's overcast and the wind just died -- shut off the TV and go practice your butter-churning. C'mon. Yes, hopefully we'll get there someday. But that day isn't going to be now, or any time in the next ten years, absent a major breakthrough. You cannot put major breakthroughs that haven't been made yet into your model.

But let's say that we conserve. I'm going to throw you a bone and pretend that our increases in efficiency are magically costless, but don't go around thinking that this is so. Any efficiencies we achieve will almost certainly cost nearly as much in the short term as the money they save; in other words, if using 10% less carbon was going to cost us 10% of GDP, in the short term making our economy more efficient will still cost us 10% of GDP, even if we wring all the emissions savings out of efficiency rather than production. Capisce?

The reason that I am pretending it's costless is that I have neither the time nor the inclination, nor the knowlege, to build a working model of how productivity and CO2 efficiency would interact under an emissions reduction scheme. Just keep in mind that any savings would, over say a 10 year period, wash out in terms of improving GDP.

Let's look at our 1950 scenario:

If we improve our total efficiency by 10% -- which is, I am told, a stretch -- we get to live in 1967 instead of 1963. A wildly unrealistic 30% improvement in our CO2 efficiency brings us to 1977. To get back to now, we have to reduce our CO2 emissions, per dollar of GDP, by more than 50%. That's an implied increase in energy efficiency of over 200%.

So to get our economy back up to 1998 levels, with 1950 levels of emissions, your car would have to get an average of over 55 mpg. Your air conditioner would have to use half as much electricity. Every single thing that you use would have to magically become twice as efficient as it is now. Every factory would have to use half as much juice to produce the stuff you consume. If you think that this is even vaguely possible, go find the nearest mechanical or electrical engineer and let him explain to you, gently, how things work.

And if we wanted to really slow down global warming?

Your car would have to get 8 times its current mileage: 220 mpg. Your air conditioner, etc. would have to use 1/10th their current electricity. And that's not even to stop global warming -- just to slow it down a lot. Do you see why getting more efficient isn't going to get us there?

And please don't be fooled by the numbers. I'm sure that a fair number of you are sitting there thinking, "well, that's not so bad. $5,400 went a lot further in 1900". No, no, my friend, you do not understand. That number means that you try to do all the things you do today, such as eat, dress, and buy Eminem CD's, on $5400 -- at today's prices. The only people I've ever met who could do it were living in a squat. And keep in mind that this means that if you manage to get your hands on a more than your "share" of GDP -- someone else has to live on even less.

I am about to be bombarded with a litany of changes we could make, like moving closer to work. Okay, let's take New York. There are between 30 and 50 million people in the New York metropolitan area (depending on how you count). Where are you going to put them? How are you going to move them from place to place, when New York's transportation network is maxed out? How will you get them food, medicine, and the consumer goods they have come to enjoy? Whatever answer you come up with, it's going to be expensive as hell. Ripping up the domiciles of every person in the US who owns a car will leave you surprisingly far from your emissions goal, with an enormous bill and a lot of angry voters.

Conclusion
Of course, there's always the possibility that I got something wrong; I am not, after all, a professional energy economist; I'm just an MBA with an internet connection and a little time on her hands. But, my chartreuse companions, that is not your way out; you do not have permission to sigh and say, "Oh, well, that's all right -- she must be wrong". If you think I'm wrong, you'd better be able to explain why. Otherwise, as long as my numbers are better than yours, you have to take them seriously.

And that's what this is about: taking global warming seriously.

I'm not a climatologist; I don't even play one on the internet. The evidence that I've seen has convinced me, grudgingly, that there's probably something there. Many of those who don't like what global warming implies are too quick to dismiss it. That's a cop-out; "I don't want to think about it, so if I close my eyes real tight and wish as hard as hard can be, maybe it will go away." It's valid to have a different opinion from mine; I'm certainly no expert. But if you do, it should be because you've analyzed the data, to the best of your ability and without wishful thinking; not because you want it to be so.

Stop laughing, global warming advocates; I'm coming to you.

The advocates are just as bad. They think global warming is a real problem. But when confronted with the enormity of the solution, they stick their head in the sand as far as it will go and say "I do believe in renewables! I do believe, I do believe, I do believe. . . " This is, frankly, -- well, my ladylike demeanor prevents me from putting a name to it, but it has no foundation in the real world. You are not going to cut our emissions back to safer levels without sacrificing a lot of GDP. 2/3 of the people living in 1900 lived under today's poverty line. They worked 12 or 14 hours a day for what they got, and many of them didn't have enough to eat. Those who lived in the cities usually lived in a couple of rooms with no electricity, no private plumbing, and sometimes no heat either. The ones outside the cities had more rooms and private plumbing -- if you can call a shack 25 feet from the back door "private". They ate less of everything. They died younger. In all measures of life, they were vastly worse off than we are today.

If you think you've got some magic way to live better on less, you'd better have some numbers to back it up -- not angry accusations as to the politics of the people who highlight the costs, or sarcastic comments about how I think we all have to go back to twirling parasols etc. First of all, parasols were not fashionable in the 1860's (when carbon emissions took off); they emerged in the 1870's and 1880's during the Parisian movement towards smaller hats, when ladies sought some way to stay fashionable yet still keep their skin a delicate white. (And with today's worries about skin cancer, you could do worse) But really, now, refusing to actually confront the costs of your goals is infantile, and is the reason that no one on the other side takes you seriously. You're giving them the ammunition to ignore global warming. You. Think about that.

A real dialogue about this -- the one we're not having because both sides are too busy screaming about the other side's dumb positions instead of addressing the real weaknesses in their own -- starts with taking the best scientific evidence about global warming and assessing the costs. And assessing the costs of stopping global warming. And talking, in a calm and rational manner, about where it is effective to lower emissions, and where to deal with the costs of warming. This is an attempt to set out some of the costs of emissions reduction. And unless you have something intelligent and reasonable to say about the numbers, I don't want to hear another parasol joke.

Demosthenes, I hope that this convinces you.

And if it doesn't -- you do the math.

Posted by Jane Galt at June 8, 2002 01:18 PM | TrackBack | Technorati inbound links