Monday, January 08, 2007

Economists have learnt to subtract

There is one subject that economists love to talk about: growth.

Growth in home prices, growth in consumer spending, growth in the economy etc.

The basic question they are paid to answer is: "how are we doing compared to last year?"

But isn't looking at growth of data like GDP going to miss the damaging effects of global warming and the depletion of natural resources?

Not really. Unless there's likely to be a major change in the rate of depletion over the next 12 months (the economist's usual time horizon).


As highlighted in the movie An Inconvenient Truth, the monthly average carbon dioxide concentration has been steadily rising for over half a century.

Note the level of CO2 has been rising steadily, not at an increasing rate.

Going up

If we use this chart as a some kind of benchmark for the destruction of natural resources, we might conclude that until now, this destruction has occured at a constant rate.

So what is the incentive for economists to "factor in" the effects of depleting natural resources if their main concern is the growth rate of the global economy over the next 12 months?

Not very high.

Spot the difference

It's not that economists don't care about the depletion of natural resources. It's just not their job.

Central banks and governments can barely keep their own economies under control for a year, let alone limit the emission of CO2.

Of course, once the depletion of natural resouces starts to have a material effect on major cities (by drowning them), then economists will start to be concerned, but only if it cuts the growth rate of GDP!

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