While our understanding of climate change is not complete, the basic science is well established. The earth is warming, and most data confirms severe climate change will result. Some data questions some details of our understanding. Other data indicates change will be much worse than originally predicted. The projections of the effects are getting better all the time, and we are starting to see the impacts for ourselves. These include more severe storms, droughts, heat waves, and wildfires. It also includes sea level rise and ocean acidification. Melting glacial ice is reducing the available reserve of fresh water in many areas.
The science is increasingly clear that we are facing a serious environmental crisis. Why is it so hard to build broad support for a plan to actually do something about it? Part of the reason is the fossil fuel industry uses its considerable influence to prevent or delay action by sowing uncertainty and misinformation. Other industries and individuals with a vested interest in the status quo join in the delaying action, but there is something deeper going on. If you scratch the surface of any climate denial, you’ll find three underlying assumptions. The first assumption is fixing the climate crisis would slow economic growth. The other two are the assumptions that economic growth is inherently good, and more growth is always better.
The most common metric for measuring the growth of an economy is a nation’s Gross Domestic Product (GDP). Energy use correlates with GDP. When GDP goes up, energy use goes up. Energy intensity, a measure of efficiency, is the amount of energy required per unit of GDP. Studies show the energy intensity of the economy is going down as efficiency of production increases, yet it is not going down as fast as economic growth is going up, so energy use continues to increase.
Addressing the climate crisis requires converting our energy system to renewable energy sources. Because energy use correlates with GDP, we need a projection of GDP far into the future to understand the problem. Most GDP projections assume continued exponential growth. We need a projection that considers the limits we are already up against. I looked at historical data and projected it into the future with these limits in mind. The conclusion is global economic growth has been slowing since the 1960s. This is despite our best efforts to increase GDP. It is likely economic growth will approach zero by the end of this century. Lower economic growth helps mitigate climate change, but it makes income and wealth inequality worse, so to address the climate crisis we must address economic inequality at the same time.
Why is this growth slowing? Both the climate and economic systems are complex, and they closely relate to each other. We must understand the economy relies on nature’s ecological systems. Ecological systems are complex and resilient, but there are limits beyond which we start to degrade them. Economic systems that worked well in an empty world are no longer appropriate for a full world. An empty world is one where we are far from the ecological limits. A full world is one where we are approaching or exceeding one or more of those limits. We are already exceeding some of the limits. For example, our burning of fossil fuels exceeds the ability of the planet to absorb our waste CO2. The result is the climate crisis.
The ecological system is the ultimate constraint, yet there are other factors that explain why growth is slowing. For example, global population growth is slowing. This seems to be a natural occurrence in developed countries. I dig more into the population later. Education is leveling off in developed countries. This appears related to the length of human life. We can only spend so much time on education and have enough time left to reap the benefits. Productivity is also reaching a peak in developed countries. This may be a case of diminishing returns. The more productive we get, the harder it is to improve. Natural resource usage constrains the economy. All these contribute to slowing economic growth.
It's worth remembering, as we move forward, GDP is a perfectly fine measure of the size of an economy, but the size of the economy is all it measures. It does not measure the well-being of humans or anything else that exists on this planet. It only aggregates the monetary value of goods and services purchased. It counts the cost of education, sales of cigarettes, and cancer treatment exactly the same. It has nothing to say about whether these things add value to our lives.
GDP also has nothing to say about how the fruits of growth are distributed. Before talking about the distribution of wealth and income, I need to provide some perspective on the scope of my analysis. The discussion of the climate crisis is global by necessity. CO2 emitted anywhere is quickly mixed throughout the atmosphere. The effects of the climate crisis will be different in individual countries, and the responses of individual countries will also be different. Still, the solution to the climate crisis must be global.
There are two ways to look at the distribution of wealth and income. First is the global distribution between rich and poor countries. The other is the distribution within countries. I prefer to discuss the distribution within countries because the adverse effects depend more on inequality within a country. Each country makes its own choices and solutions. This is dependent on the culture and values of the individual countries. I also focus on the United States because, as an American, I see the culture, values, and choices every day.
Research shows economic inequality in the United States is the highest among developed countries. Most Americans don’t need to see the statistics to correctly sense they are not getting an equitable portion of the economic pie. As long as there have been wealthy elites, they have used their vast resources to tilt the playing field in their favor. They do this by changing the rules which define our economic system. Then they try to convince the rest of us their interests are everyone’s interests.
High inequality makes a host of social maladies worse. In more equal societies, people enjoy better health and longer lives. There are fewer drug problems, obesity, mental illness, and people imprisoned, and it does not only affect the poor. The anxiety of keeping up with the Joneses or staying on top causes stress. This leads to many of these maladies.
Next, I explore global population trends and projections. While global population growth is slowing, it is quite uneven. Most developed countries have fertility rates approaching or even below the replacement rate. Many developing countries are also approaching developed country fertility rates, but Africa is a wildcard. Fertility rates in Africa are very high and coming down slowly. There is considerable uncertainty in the future of African fertility rates. This causes uncertainty in global population projections. Better projections of African fertility rates will reduce uncertainty.
I also explore the possibility of collapse. Many isolated historic civilizations that reached the limits of their environments have collapsed, but many made better choices, adapted, and survived. They did so by reacting early with better choices. Since we are able to affect the global environment, the entire human race needs to be considered an isolated civilization. We have no outside resources on which to rely. Now, all humanity needs to react early.
The final population topic deals with age distribution distortions. Populations are getting older. This is due to the lowering of fertility rates and increasing life expectancy. This causes problems financing the care of the elderly. There are fewer working-age people to support more elderly people. This, in turn, leads to excess debt problems.
I include a discussion of debt and other constraints on the economy. Governments are generating mountains of debt. They can reduce debt in two ways: increasing taxes or reducing benefits. Due to political considerations, neither of them is popular. Debt can become excessive and destabilize the economy. To find a third way, it is important to spend some time understanding money. This is more complicated than one might think. This leads to a discussion of the inherent instability of our economic system. A discussion of campaign finance is also important. Our political campaign finance laws allow buying undue influence. The wealthy elite and large corporations use this to keep their advantages.
Whether we like it or not, this is our new reality, and we have no choice but to solve these complex, interrelated problems at the same time. Thinking of such complex interactions can be overwhelming. The good news is researchers all over the world are working on these problems. They have made significant progress in several areas.
After discussing the problems we face, I move on to suggest solutions we can choose to put in place. I begin by taking apart the three assumptions that underlie climate denial, which got us to our current predicament: fixing the climate crisis would slow economic growth, economic growth is inherently good, and more growth is always better. This worldview no longer serves us as a species. We need a new worldview to take its place. We need to adopt a worldview that recognizes when we have enough, more is not always better, and we can flourish with enough.
The picture of where we are will lead us to policy changes that can achieve the outcomes we want. Before I can do that, there needs to be a better definition of what we need. One way to think about what humans generally really need to prosper is through Maslow's hierarchy of needs: Physiological Needs (food, water, shelter, rest, etc.), Security and Safety, Belonging (intimate relationships, friends, and family), Esteem (accomplishment, recognition, prestige, etc.), and Fulfillment (purpose, achieving full potential, happiness, etc.). Maslow’s hierarchy of needs has attracted criticism, yet it still rings true for many people.
In today’s world, we need to add a stable and healthy environment and economy to the base of Maslow’s hierarchy to support the physiological needs and security and safety as well as the higher level needs. Note that higher income is not a need. More money buys happiness only for those earning less than about twenty thousand dollars per year per person. A surprising amount of research confirms this. We start from the premise that our desired outcomes are a stable environment and fair economy rather than endless growth. Then, we can begin to choose the policies that support those priorities.
Policies to address the climate crisis are my top priority. While market economics is not a cure-all, it has proven to be an exceptionally powerful tool that uses human incentives to lead to desired outcomes. To date, emitting greenhouse gases has been essentially free. There’s no cost to a power plant owner of the carbon dioxide the plant releases into the atmosphere. In fact, it would cost the owner more to put in technology to cut those emissions. Putting a price on carbon dioxide emissions ensures the costs are borne by the emitters. This harnesses the market economy to reduce carbon dioxide emissions and thus mitigate the climate crisis.
There are two key market mechanisms that have been developed to put a price on carbon. First, there is a cap and trade system. This caps the emissions and issues or auctions permits to emit. Emitters may then trade permits. The other option is a carbon emission tax, which can be revenue neutral. Either way can work, and there are advantages and disadvantages to each.
I have come to prefer a carbon tax because it is easier to get right. To be revenue neutral, proceeds from the tax can be returned to each adult citizen. For some, this will help offset the increased energy costs that result from the carbon tax. The more each individual can adjust his lifestyle to cut carbon emissions, the more of a windfall this will be. Since the wealthy use more energy than the poor, this may be considered a transfer from the rich to the poor through the government.
I will explore the global Dynamic Integrated Climate-Economy 2 (DICE) model. This is an integrated assessment model that combines simple climate and economic models. It also assesses the three critical components of any carbon pricing scheme: the effectiveness, the carbon price, and the timing.
For example, suppose we had implemented an action plan in 2015 and our goal was to stay below a 2° C temperature increase from 1900. The model suggests we could do that by applying a price of carbon emissions of $2 per ton in 2015 and gradually increase the price to $280 per ton in 2050. If such a plan had been implemented in 2015, the model predicts the atmosphere would reach a 2° C increase in about the year 2105 then start decreasing over time.
But we didn’t implement carbon pricing in 2015. 2020 isn’t looking particularly likely either. The model bears out what your common sense would already tell you. The longer we wait to start, the higher the required CO2 pricing will be. Beyond that, there is a time window in which we must start. If we miss the window, we will not be able to keep the temperature increase below 2° C. It appears it is already too late to keep the temperature increase below 1.5° C.
Next, we move on to policies to address economic inequality. While the climate crisis discussion is global, the economic system and inequality discussions are focused on the U.S., but it may be applicable to other countries. We must address the rules of the economy that give advantage to the wealthy and corporations at the expense of everyone else. Some of the recommended policies allow the rules to return to the way they were thirty or forty years ago. For example, as of 2016, the United States estate tax exemption amount was $5.45 million (it increased temporarily to $11.4 million for 2019 to 2025), and the maximum rate was 40%.64 In 1977 the estate tax exemption amount was only $460,000 in today’s dollars, and the maximum rate was 70%. Returning to the 1977 law would significantly reduce economic inequality.
Other policy recommendations are new and help change the economic system to achieve desired outcomes. There are two ways to reduce inequality. First is to transfer money from the rich to the poor. The second is to provide a more equal opportunity. Either or some combination of these will provide the benefits of a more fair economy as long as inequality is reduced. In this book, you will find limited recommendations for increasing transfers to the disadvantaged.
I prefer to change the rules so the economy is fairer before transfers. This is because significantly increasing transfers seems politically impossible in the U.S. Providing equal opportunity is a fundamental value in the United States. Think of it as leveling the playing field. There are many recommendations. For each one, background information puts the recommendation in perspective.
Robert B. Reich discusses the countervailing power in his book, Saving Capitalism, For the Many; Not the Few.3 The countervailing power is the aggregated power of the many to counter the power of the rich few. In extreme cases it can be violent like the American and French revolutions. In modern democracies, it is almost always political. Many proposed solutions are possible only by organizing this countervailing power. This power will be necessary to remedy inequality and the climate crisis. It was strong most recently in America from the 1930s to the early 1970s. In those years, Social Security, Welfare, Civil Rights, and economic growth all flourished. I am optimistic this countervailing power can assert itself again.
If the citizens of the U.S. were to create a countervailing power, what kinds of things should they push for to address inequality? The first goal should be to create an economy that is less subject to violent swings between expansion and recession. Expansions inflate the fortunes of the already wealthy. Recessions destroy families who are living on the edge. We can increase stability, but we shouldn’t expect to smooth out all cyclical expansions and recessions.
There are several ways to make the economic system more robust and less volatile. For example, fractional reserve banking allows banks to keep only a small fraction of deposited money, currently 10% in the US. We need to constrain fractional reserve banking by increasing the reserve requirement. In our system, money is usually created by banks lending it into existence. This has caused governments, companies, and individuals to accumulate a mountain of debt. Raising the required reserve reduces individual banks’ abilities to lend money into existence. Another way for the central bank to create money is through quantitative easing, the practice of buying government bonds or other financial assets in order to inject liquidity directly into the economy. It did this after the 2008 crisis. This can make up for the banks’ lost abilities. The central bank can retire the government debt purchased by quantitative easing. This may be appropriate to reduce our government debt load.
Next, companies and financial institutions that are too big to fail are too big to exist. We need to break them up to provide financial stability. One last cause of financial instability is high-frequency trading on Wall Street. To further improve financial stability we must curtail this trading. We can do this by collecting a small tax on such transactions. About 0.5% to 1% of the transactions should suffice.
So far I have mentioned the size of the economy, but there is more to the story. Energy use ties the size of the economy to carbon emissions and thus to the climate crisis. To solve the climate crisis, it will be necessary to optimize the size of the economy. There is a best size of the economy based on the carrying capacity of each nation. As I mentioned previously, we are already exceeding ecological limits. As we further exceed ecological limits, economic growth will likely continue to slow. Growth is slowing even in developing countries. Sooner or later we will have to face this reality.
There are examples of civilizations that have exceeded their carrying capacity and have collapsed. Think of the collapse of the great Mayan civilization or Easter Island. In the modern world, that is likely to mean low growth, no growth, or even negative growth. Also, the economic system will become even more fragile and unstable.
The challenge will be how to thrive in these conditions. Our experience is that these conditions cause recessions and unemployment. With low growth, even the slightest perturbation will cause a recession. To avoid this, we must change the economic system to make it more resilient. This will help to avoid downturns and make surviving the ones that do happen more manageable.
From the history of collapsed, isolated civilizations, there seem to be only two options: react early or collapse. Since our isolated civilization is the whole planet, it is imperative we react early to transition to a sustainable population and a sustainable economy. First, we need to make achieving a sustainable economic scale a priority. This is a huge but critical first step. Most Americans’ worldview defines economic growth as progress, and more is better. Mainstream economists have preached economic growth is the only path forward. The ultra-rich and advertisers are happy to support them. The advertising industry exists to encourage us to want things we don’t need and don’t make us happy for long. Challenging someone’s worldview is not the best way to make friends, but we need to move to a worldview that says a sustainable economic scale is better. It will lead to more fulfilling lives and more leisure time with less stuff we don’t want.
If we choose to make achieving a sustainable economic scale a priority, how do we do it? One way to manage the transition is for the central bank to have sustainable scale goals. They would keep their monetary and financial stability goals. They could reduce economic growth goals over time.
In economies with no growth, increases in productivity mean there is less work to go around. With our current economic system, this leads to unemployment. A related issue is the mountain of debt we are creating. Much of that debt is being generated to finance retirement benefits. To reduce the pressure on debt, there is currently a push to increase the standard retirement age. This increases the number of workers for a shrinking amount of work. One way around this is to increase the retirement age but reduce the standard work week. It may be possible to reduce the rigidity of the standard work week. Employees may be able to adjust their work weeks based on the situation. We must still define the details of such a system.
One final action required is to stabilize the population. A non-coercive way to do that is to make contraceptives available to anyone who wants them, globally. Another way is to make primary education available to all, globally, especially to girls. This is especially true in developing countries. Together, these steps could be enough to stabilize the population.
To get policy improvements enacted we need the support of the majority of Americans. In spite of the efforts of the fossil fuel industry and the noisiest climate deniers, most Americans think we need to address the climate crisis (58%).115 Supporting science is becoming increasingly clear. Americans are seeing the early effects often on the evening news or on the web, and an unlucky few are feeling the impacts directly, but those passionate about it are still a minority. Similarly, many Americans believe economic inequality is a problem (64%).116 Except for those in the higher income brackets, Americans have not seen the benefits of an expanding economy. The middle and lower classes together make up a large and passionate group as indicated by the support generated by Bernie Sanders in the 2016 election. The election of Donald Trump may also support this, but it may also be related to white identity politics or the strength of conservative media.
In any case, these very different groups may be able to form a coalition. These groups may sound like strange bedfellows, but the strongest coalitions have people who have areas where they disagree. The coalition will have to focus on the common goals of the climate crisis and economic reform. It will also have to accept or avoid areas of disagreement. These are issues that have passionate advocates but are not related to the two main goals of addressing the climate crisis and economic reform. Some issues to avoid are abortion, gay rights, race issues, gun control, health care, and Common Core. We may need to park next to people with different bumper stickers. It may be possible we will not be able to set aside our differences, but given the power and influence of the ultra-rich and fossil fuel industry, it may be our only option.
In Chapter Twelve I discuss the actions necessary to put in place the policy recommendations. First, we need to elect representatives who share the coalition's main goals. The policy recommendations I discuss may provide topics on which to correspond with your elected officials. I discuss some tips for writing to and influencing our political representatives. Also, some Non-Governmental Organizations can help influence our representatives, and supporting them may be an efficient way to gain influence with our representatives.
Finally, the conclusion in Chapter Thirteen brings all the pieces together. This completes the picture of where we are, how we can fix it, and some thoughts of how to make it happen. I provide an overview of what we covered in the book and some overarching conclusions. If I am successful, this book should help you feel comfortable with the idea that our choices can lead to better outcomes. This will allow us to construct a fairer economic system and mitigate the climate crisis, creating better lives for all.