Free Markets, Free People

# Observations: The QandO Podcast for 29 Jan 12

This week, Bruce, Michael, and Dale talk about the SOTU speech, Republican race, and slow collapse of the EU.

The direct link to the podcast can be found here.

As a reminder, if you are an iTunes user, don’t forget to subscribe to the QandO podcast, Observations, through iTunes. For those of you who don’t have iTunes, you can subscribe at Podcast Alley. And, of course, for you newsreader subscriber types, our podcast RSS Feed is here. For podcasts from 2005 to 2010, they can be accessed through the RSS Archive Feed.

# A comparison of catastrophic scenarios

Consider the following generic proposition:

“System Y is a complex system, and its destabilization would have a dramatic negative impact on society. Factor X is known to influence System Y, and the growth of Factor X is believed to destabilize System Y and even make it possibly vulnerable to catastrophic Failure Mode Z.

“Therefore, for the good of society, it’s extremely important to reduce Factor X. Everyone must make sacrifices to avoid Failure Mode Z. “

If any particular values of System Y, Factor X, and Failure Mode Z come to mind when you read that, please note them before you read the rest.

Whether such a proposition is valid in the real world depends on many things. For example, is it proven that Factor X’s growth contributes to the destabilization of System Y? What is the probability that the current rate of growth of Factor X will cause System Y to fail in some way. What’s the probable timeline involved? What are the likely negative results if System Y becomes unstable? Are there results from the past of such systemic failure, and if so what can we learn from them about the probabilities and outcomes in this case?

Let’s take a look at a couple of real cases of the proposition.

First, let’s consider

System Y = global climate

Factor X = carbon dioxide

Failure Mode Z = significant global temperature rise with attendant sea level rise and other forms of extreme environmental degradation

With this particular substitution, most of those on the left would vigorously assure us that the proposition was valid. They would then tell us that, in order to reduce carbon dioxide, drastic measures are needed, even though those measures have some very undesirable side effects on various members of society.

Next, let’s consider

System Y = US or world financial system

Factor X = government spending and debt

Failure Mode Z = financial system meltdown, in which financial institutions fail en masse, and normal commerce is halted or seriously disrupted

Now, if we make this substitution and present the proposition to a typical leftist, their reaction would be quite different. They would very likely not agree that drastic measures are needed to reduce spending and debt. Based on recent arguments from the left, they would look to comparatively small changes to address any dangers, such as raising taxes on rich people, or “rooting out fraud and waste”. Such changes have been tried before, and clearly are not a long term fix, yet the left keeps insisting that they are sufficient to head off potential financial catastrophe.

They would certainly not be in favor of dramatic reductions in Factor X in this case. They would be very concerned about the effects on society of the spending reductions, and would likely even resort to hyperbole to highlight those effects. They might even say that those who advocated dramatic reductions in spending and debt were cruel, heartless people who were simply unwilling to do their part for other, less advantaged people.

Let’s first assume, just for the sake of argument, that both forms of catastrophism are real dangers. I think they actually are quite different in the amount of danger they pose, but for now let’s pretend that they are both serious dangers that could result in catastrophes affecting many millions of people in drastic and awful ways.

In that case, why would the left react so differently to the presumed obvious solution of reducing Factor X?

I believe the real reason the left supports drastic measures in the first case but not the second is fairly obvious. In the first case, the reduction of Factor X (carbon dioxide) requires a dramatic increase in government size and influence. In the second case, the reduction of Factor X (spending and debt by various governments) requires a dramatic decrease in government size and influence. In fact, it calls into question the entire viability of the welfare state. (More on this below.)

Of course, those on the right are subject to the symmetrical analysis. One might conclude (in fact, the typical leftist would almost certainly conclude) that the right makes such decisions solely based on their distaste for big government. They don’t accept the first proposition because it increases government, while they accept the second one because it decreases government.

However, as I said earlier, there are a lot of other factors in play. The probabilities involved and the historical analogs are quite different.

In the climate change case, there is no historical example of the climate system failing by going into a catastrophic mode. There have been ups and downs due to natural causes, but no mass extinction, for example, has been clearly traced to runaway temperature rise.

We have some geological evidence about climate change. Geological examples are necessarily fuzzy, but the best ones we have go the other way. We know that ice ages are not uncommon, and in fact occur on a semi-regular basis. We know that one ended about 10,500 years ago, and that ending (i.e. the warming that went with it) was probably a major factor in the spread of modern humans around the planet.

We know that there have been periods when the climate was warmer or colder than average, and we also know that mankind has generally fared better during the warm periods.

So there’s no tangible example from history or geology that should fuel fear of catastrophic warming. All we have are models. They have a short baseline, and even in that baseline, they have shown serious flaws. Other factors such as solar variability appear to have a greater influence than mankind’s carbon emissions than most of the models include. (This ignores the strong possibility of outright incompetence, fraud, and other human factors that cast doubt on the models.)

You can read a recent summary of the state of that argument in this article. A few extracts:

“…the data was issued last week without fanfare by the Met Office and the University of East Anglia Climatic Research Unit. It confirms that the rising trend in world temperatures ended in 1997.”

“CO2 levels have continued to rise without interruption and, in 2007, the Met Office claimed that global warming was about to ‘come roaring back’. It said that between 2004 and 2014 there would be an overall increase of 0.3C. In 2009, it predicted that at least three of the years 2009 to 2014 would break the previous temperature record set in 1998. So far there is no sign of any of this happening. But yesterday a Met Office spokesman insisted its models were still valid.”

“Meanwhile, since the end of last year, world temperatures have fallen by more than half a degree, as the cold ‘La Nina’ effect has re-emerged in the South Pacific.

‘We’re now well into the second decade of the pause,’ said Benny Peiser, director of the Global Warming Policy Foundation. ‘If we don’t see convincing evidence of global warming by 2015, it will start to become clear whether the models are bunk.”

Climate change has been vigorously discussed on QandO, so there’s not really any need to go further. It’s enough to note that the entire case for climate catastrophism looks a lot shakier than the left wishes to acknowledge. And again, we don’t really have any historical examples to learn from, and the geology is fuzzy.

However, on the economic side, we certainly do have examples of system failure. From Roman times to the Weimar Republic, we’ve seen that an economic system can certainly fail from too much spending and debt.

Further, the economic models have something in them the climate models don’t – clear and obvious exponential factors at work. Compound interest is one such factor that no one can deny. It’s also the opinion of many (including myself) that the spending curve for most welfare-state governments exhibits an exponential shape.

We know that exponential growth cannot go on indefinitely in the real world. Eventually, the amounts outstrip the boundaries the real world will tolerate. This is often expressed by the saying “What can’t go on forever, won’t.”

There are other differences. Climate change, if it happened at all, would happen over a span likely measured in decades. No one outside silly movies is saying that a city such as New York would go to being underwater, or too hot or too cold to live in, in a matter of weeks or months.

Financial failure, on the other hand, could happen quite suddenly. Most people would not be prepared for it, and that would cause the suffering to be worse.

Finally, it’s not clear how much of the populace would be negatively affected by significant warming of the earth. Some would clearly benefit – just ask the folks who live in Greenland. Others could suffer, of course. However, remember our history – humankind does better in warmer periods. So there would have to be a dramatic runaway spiral on heat to get into territory where the net effect would be dramatically negative.

I’m not saying it couldn’t happen, but the probabilities for that look ridiculously low and we have no historical, archeological, or geological examples to point to.

However, an economic catastrophe in the US financial system would affect almost everyone here, and many others around the world. Certainly those with lots of assets could ride out the effects better (“women and minorities hardest hit”) but hyperinflation on the Weimar scale wipes out even huge fortunes. Plus, our financial system is more complex than ever, and we now have a society utterly dependent on its smooth functioning. In the Great Depression, a majority still lived on farms and grew their own food. They were insulated from the very worst effects. Not true today – if the system really broke down, a lot of people would grow hungry quickly. You can write your own ending from there, but it’s pretty much certain to involve civil violence, looting, etc. Because we’re in uncharted territory in the complexity of our society and our financial system, it’s not inconceivable that outcomes could involve depravation and widespread violence never seen in this country (though I think that’s an unlikely, worst-case possibility).

So to summarize: the left is frantically worried about climate change, even though the outcomes are quite murky. They are ready to take drastic action right away, even though those murky effects might be quite a ways into the future, if they can just get those Neanderthal righties to accept the consensus, etc.

But they are quite blasé about an approaching catastrophe that is much more likely, has historical parallels, has effects that could be worse for more people, and could happen in very short order.

How can this be? If what I say is correct, how can they support dramatic intervention to mitigate climate change, but not support dramatic intervention to mitigate economic meltdown?

Because accepting the possibility of economic catastrophe means rethinking their entire philosophy. Intervention to mitigate economic meltdown means dramatic reversal of the welfare state. Most of those on the left are mentally unable to accept that possibility, and will therefore resort to any level of rationalization necessary to reject it.

Thus, I conclude that most leftists have convinced themselves that an economic catastrophe is wildly unlikely to occur, just as those of on the right simply don’t believe that a climate catastrophe is likely to occur. As I outlined above, I think their conclusion is logically unsupportable, whereas I think doubting a climate catastrophe is completely supportable.

Given 2008, given the spending curves, given the obvious incompetence and mendacity of our politicians, how can they doubt the strong possibility of economic catastrophe? Well, in their lifetimes, there has always been one more set of kludges that kept the system stabilized for a while. They can rationalize that, if certain selfish parties just give in to another set of kludges, things will work out fine. They simply ignore historical parallels, or come up with rationalizations for why they don’t apply to our present circumstances. Some have abysmal math skills, and don’t intuitively grasp what an exponential effect really means, so they don’t give such factors any weight.

They also take comfort in the idea that they are fighting for the poor and downtrodden, and cannot conceive of a world in which the welfare state is not the framework where they do that. To them, preventing a catastrophe that has not yet occurred by taking measures that are sure to hurt such people is simply unthinkable.

I think this is insanity. Even if we accepted the most aggressive Republican proposals currently out there, they don’t even turn the tide against spending and debt. Fall 2008 gave us a pretty clear warning that the system is no longer stable. If the financial catastrophe occurs, it will hurt everyone, and it will hurt the poor and downtrodden the worse – far worse than spending reductions that gradually start reducing the welfare state.

This leads to a troubling corollary. Most leftists don’t really seem to believe the system is vulnerable to catastrophe, but, based on behavior, neither do establishment Republicans! If they did, last year’s dance around the debt limit would have a far different character to it. The establishment Republicans are engaged in only a slight variation in the “kick the can” strategy favored by Democrats, and the only reason they vary at all is the influence of the newly elected, tea-party-backed contingent in the House.*

In 2008, both the establishment Republicans and the Democrats in Washington panicked. For a while, it looked like the catastrophe might actually be imminent, and that scared them spitless. They authorized huge, unprecedented levels of spending and debt, mostly because of their fear.

They don’t seem scared now. Even though it ought to be obvious that you don’t solve a debt crisis for the long term by adding a lot more debt, and even though their measures certainly did not achieve the predicted results on growth and employment, they have lapsed back into their mental fiction that nothing that bad is really going to happen.

I’ve pretty much stopped listening to them. The coalition of welfare state leftists and establishment Republicans are living in a fantasy land. I don’t think they will really believe in the possibility of economic meltdown until it actually happens or is so imminent that it can’t be denied. As Heinlein said:

“Human beings hardly ever learn from the experience of others. They learn; when they do, which isn’t often, on their own, the hard way.”

Then, since they’ve never really considered it possible, when/if it happens, they’ll be clueless about what to do. When they take additional panicked action, it’s likely to make things worse instead of better (as I think many of the actions in 2008 did).

Make whatever preparations you think necessary. I don’t think financial catastrophe is inevitable, but I do think it is the most likely outcome, whether it’s ten years from now or twenty years or next month. I have a bumper sticker on my car that sums it up: “Believe in yourself, not the government”.

(*) I concede the possibility that some DC politicians know we might be facing economic catastrophe, but have concluded that they can’t do anything about it politically, so they might as well keep playing the business-as-usual game. I regard that as dishonest and cowardly. If we are to prevent the catastrophe, one of the absolute pre-requisites is that people understand that it could happen, and are therefore willing to endure the measures to prevent it. Also, obscuring the possibility of financial catastrophe in the guise of “not scaring the people” is condescending, arrogant, and makes it more likely that the catastrophe will actually come to pass.