Thursday, April 26, 2007

Jevon's Paradox, Exponential Growth and Reallocation

Jeff Vail is one of the smartest people out there writing about peak oil. His focus is designing a sustainable future. I don't agree with everything he says, of course, but even when I disagree, I learn from him. He's got a fascinating article on the limits of conservation over at The Oil Drum here: Some good comments and discussion there as well. You can read more of his material over at I particularly recommend his material on EROEI - he's the person I go to if I have questions on this subject.

I was particularly engaged by this post, because I've argued in the past that Jevons' Paradox (explained over at Jeff's article) is, in fact, not inevitable, but to a large degree culturally constructed. Or rather, I think that Jevon's Paradox will always limit to some degree the return you get from conservation and culture change, but you can minimize its effect.

For example, Juliet Schor in her book, _The Overspent American_ documents that the better educated you are, the more you spend, the more indebted you are, and the less you save. Got a Ph.d? You probably are carrying significant credit card debt (over and above any student loans), have a whopping mortgage, a couple of car payments, etc... Now you also probably make (even if your Ph.d was in something comparatively useless like mine) more than the average bear. But you are spending even more than you make trying to gain status and establish yourself as authentically different from other people who are trying to gain status. Not that you call it that, of course - but that's how it operates.

Now the poorer you are, interestingly, the more likely you are to spend your money on necessities, of course, and the less likely you are to status buy. The most likely people to drop out of cultural status competitions, according to Schor, are poor African-Americans. They also have a higher savings rate for their income than average (important, since our national savings rate is now negative.) So a strategy, for example, that passed the benefits of conservation along to poorer, urban, African American people would see us return greater net benefits from conservation as a whole.

The poorer you are, the less energy you use. That is, you are more likely to take the bus, live in a densely populated neighborhood and walk places, and you buy less stuff, and more of it used. Thus, you might estimate that a dollar that comes back to a poor person in gas savings lose only 10% of its value in Jevon's Paradox, while one that came back to much richer person would lose up to 30%. These aren't exact figures, of course, but I think they are important, because they point up that a. the scope of Jevon's paradox is something that can be regulated by a number of things, including *who* gets the benefits of demand destruction and the cultural context they come from. If Jevon's Paradox isn't an absolute truth (or perhaps it is, but an extremely contingent absolute truth), than we can focus our energies in part on limiting its impact.

In fact, this reallocation could *reduce* some of the places where poorer people do consume more energy than richer ones - in food, for example, if people were enabled to work less and offered classes in cooking and its energy impact. Health care would almost certainly be a reduction - that is, more money in the hands of the poor would enable them to use doctors instead of emergency rooms, and to treat treatable illnesses before they became acute.

All of which is why I think that simple carbon taxation, with the proceeds in the hands of the government (which has no real incentives to curb its spending), even allocated, as Jeff suggests, to design and adaptation strategies, might be less useful than a system that engaged in wide scale reallocation of wealth - that is, a tradable rationing system. That is, everyone gets a flat amount of energy for the year (it could start at 2% less than our present usage, for example - this is what Richard Heinberg and Colin Campbell's Oil Depletion Protocol does), and those who are already below consumption levels make money. Now they will spend some of that money, of course, but if they like having more money (and people often do) they will also wish to retain their source of income - that is, they'd be forced to find lower impact ways of using their wealth.

And this would result in a large-scale net transfer of wealth to poorer people in the US. This is a growing class - 1 out of every 5 people in the US now lives on less than $7 per day, which in buying power is about equivalent to the third world's famous $2 per day income. Wealth inequality has grown steadily over the last decades, and now is as acute as it was right before the stock market crash of 1929. Economic disparity is part of the fuel for our consumption - the richer rich gets, the harder we run to try and keep up with whoever our Joneses are. Poorer people are accustomed mostly to keeping up with poorer people - and that makes a big difference in our sum ambitions, and the energy we use for them. Getting more cash to people whose dream is to drive to Waukeegan to visit the grandparents is more useful than getting more cash to people whose dream is to fly to the Carribean.

So we'd be transferring money to people who are a. most likely not have their basic needs met (and away from the people who most likely *do* have those needs met), b. who are likely to use it in the most energy efficient way possible and c. to the people most inclined to save. Because it turns out that while the poorest of the poor are unlikely to save, America's remaining savers are mostly concentrated in the lower middle class. And this is true all over the world - dirt poor farmers in rural China who live on less than $2 per day are likely to save up to 1/4 of their income - while Chinese urbanites save less than 1/10.

Part of this is the urgency of saving for the poor - poor people know there's no safety net under them. They know that if they don't have a reserve, any crisis can be a disaster. Moreover, they are more likely to have poor family members who need help in hard times because *they* don't have safety nets. A recent study showed that the poorer you are, the more willing you are to lend money to your family.

On the other hand. wealthy people a. often don't realize how urgent savings is, because no disaster has ever befallen them, b. they often get more credit extended to them, and thus are more indebted, and can't save because they have to service debt, and c. they often use credit as a fall back position - that is, if they lose a job, they plan to rely on credit, with the assumption that someday they will be rich again. Because credit is an enormous part of the whole growth problem, giving money back to rich people is not only problematic because they'll just spend it, but because they will spend *more* than what they get back, feeding their debt cycle. As a 2004 Harvard study showed, after receiving George Bush's stupid tax rebate, most Americans spent it. But the richer you are, the more likely you were to spend not just your rebate, but more than that, based on feeling richer. And the wealthier you were, the more extra you spent.

Now a wealth transfer would almost certainly encourage poorer people to spend more money. But because that wealth transfer would create strong incentives to have it continue (that is, if you make 5K a year by not using energy, you'd prefer to keep that money coming in), and thus to find the lowest possible energy intensive uses for wealth. And it would do that not only for the poor, but for everyone - that is, every single person would experience a strong incentive to decorrellate wealth from energy use. This would be the deepest benefit of a tradable rationing system - right now, money correllates pretty strongly with energy. Can we decouple them? I think we can - if people have more wealth when they use their money to buy, say, sustainably farmed food, handwoven clothing and other things - costly, but not to our energy budgets, those professions become economically feasible for a larger portion of the population.

I'm hesitant to overstate the case for tradable rationing, but I am wondering if such a model, something like the ODP, couldn't become the generative source of a new, more sustainable, non-growth based economy. And the backbone of that economy (more or less coincidentally) would be a vastly smaller disparity between rich and poor.

Minimizing the energy consequences of Jevon's paradox then, is in part a project of getting the economic returns into the right hands. That is, ensuring that the people who profit from whatever system we use are the people who both need the money the most, and who are least likely to waste it. We might find that efficiency matters more in a more equitable society - and that the interests of creating an low energy society mandates a greater degree of equality and fairer distribution of wealth. And redistribution itself might be the origin of something different - maybe even better.

Now the issue of political feasibility is a real one in the short term, which is why I think that raised energy taxes may be a shorter term necessity. Ultimately, who would want to see the power to ration resources held in the hands of the present government (or in many of the candidates currently vying to replace it - Hillary is saying she may want to invade Iran too - are you surprised)? That said, everyone raise their hand who thinks that a tax dividend on gas would go into redesigning a better future under the present government. And that is the real problem of top-down solutions.

I've got another post in the line about Eichmann in our living rooms, because I think it deserves some more analysis. After that, I've been mulling over our options if top down solutions remain unfeasible. I wonder - could we institute rationing without them? Surprisingly, the answer might be yes - but it would be hard. More on this soon.



RAS said...

I think that this is a good idea. I also don't think it has any chance of happening. The rich don't want to give up what they have to help the poor. This attitude was best summed up by a minister in one of my classes (he's come back to school to get a counseling degree) when we were discussing Universal Health Care: Why should I pay for someone else to have health care? Why I should I help them when they obviously aren't willing to help themselves or they wouldn't be poor? What right have they to some of my hard-earned money? None. (rant on poor people)"

Anonymous said...

Just yesterday I was trying to get my mind around J's P, and thinking I should ask you to address it.

It struck in the critique you are discussing that the author saw only two options, but the money in the bank or spend in ways that encouraged more consumption.

He gives the example of the store owner who cuts back on energy use and then find that the money he saves can only be used in was that increase consumption of other resources.

I didn't see why you couldn't either keep the cash in an old potato in a hold in the floor (out of the bank) or spend it in ways that discouraged consuption. I suppose giving it to people to spend to insualte their houses could been seen the short term as creating more polution, etc, but how could paying your staff their hourly age to get out and dig in the dirt and help establish community gardens hurt, or establing a fund to pay for people who wanted to T.L.s? (Surely the consuption invovlved in the operation is less than in raising the child.)


jewishfarmer said...

Hi RAS -

I agree that we've been brainwashed so badly that we often don't want to do things that would be good for *us* just because we might actually help the poor. It drives me nuts.

I certainly wouldn't recommend using this rationale (and I've actually edited the post and expanded my argument a bit to say that I think that the potential outcome is even more radical) to most people - but absolute rationing might become politically feasible over time. It did in the 1970s and during WWII - and I suspect, for example, that after Sept. 11, or even Hurricane Katrina, it might have been possible to begin moving the country in that direction. So I think the likelihood is that it will become politically feasible sooner, rather than later. The problem, as I say in my edited version, is whose hands you give the power. I don't know about you but the thought of energy being rationed by this government gives me the willies.


Anonymous said...

This argument would be much more compelling if you supported your statistics. For example, where did you read that 1 in 5 people are living on $7/day? Where did you get those savings rates? Statistics are too easily manipulated to be used as givens.

allen claxton said...

The most likely people to drop out of cultural status competitions, according to Schor, are poor African-Americans.

That strikes me as seriously wrong-headed. I think poor, urban African-Americans don't drop out of status competitions--I think they compete differently. Bearing in mind that I am not poor, African American, or particularly urban, I think that there are plenty of sites of status competition. Consider the phenomenon of freestyle rap battles, like those depicted in Eight Mile (and, yeah, I know, I'm stupid for drawing lessons about inner city life from a Major Hollywood Movie, but I don't think anyone contests that it's memorializing an actual activity). That's cultural status.

Moreover, consider the inner-city drug system (obviously not to say that anywhere near all or most inner-city African Americans are involved)--my understanding is that it's equal parts economics and cultural status. Ditto gang membership. (Actually, I should take a moment to bemoan my own lack of knowledge of more positive cultural institutions for the inner city, as well as the lack of attention to those institutions in national media.)

I have more to say about the actual point of your post, but I figure I'll put that in another comment, less this get even more ungainly.

jewishfarmer said...

Sure, I'll gladly cite them. I didn't bother because both have received quite a lot of public attention lately and I assumed they would be familiar to most people.

The negative savings rate is from a 2006 study released by the US Commerce department, which reported that in 2006, the national savings rate fell from 0, to -.5. There's a news article about it here, but the original data I've only seen in print, I don't know if it is online or not, although it probably is.

As for the 1 in 5 statistic, that was released in 2004 by the US Census, based on data analysis from 2000, but a December 27, 2006 Times of London article suggests that the trend is continuing. I can't link to the article because it is behind a paywall.

Honestly, though, I don't think that much of my argument relies on this - who cares if we save 1% of our income as we did in the late 1990s or -.5% - the reality is that we are living with almost no safety net. And does anyone who has been watching the massive growth in economic inequity really have any doubt whatsoever that 16% of the wealth of our nation in the hands of the top 1% means that the people at the bottom have less?


allen claxton said...

On the more general point about Jevon's Paradox, rebound, and energy use. First, to my mind, there's a difference between Jevon's Paradox and the rebound effect. Rebound is what happens when efficiency occurs in a well-developed energy system. If you struggle with your energy bills, and your home gets weatherized, you're not going to see all of the engineered savings, because you'll reduce your energy saving efforts in other areas--like turning your thermostat up from 57 to 65.

Jevon's Paradox, on the other hand, is more a phenomenon of revolutionary change. Jevon himself was commenting on the way that a slight increase in the efficiency of extracting coal created an enormous demand for coal itself. The difference between rebound and Jevon's Paradox, to my mind, is the difference between turning your thermostat up and suddenly creating transnational rail-lines powered by coal. Jevon isn't concerned with losing 30% of efficiency gains--he's concerned with the market for a resource growing exponentially.

I agree with your general point that culture is important. However, I think your specifics are a little suspect. To take my example from above, when you weatherize someone's home, you get different outcomes based on whether they're rich or poor. If they're rich, you generally don't see much rebound, because their energy use isn't bound by their budget. (This is what Vail seems to mostly be concerned with--the rich are going to shift their spending into other areas, but their household energy use is going to go down, at least until they start buying more energy-using appliances.) On the hand, if they're poor, you're going to see a lot of rebound because, like I said, you no longer have to keep the thermostat so low.

Also, tacking onto the end of this, I should say that my "seriously wrong-headed" crack in my first post is directed more against Schorr, than you. Sorry I'm being so rant-y here.

Anonymous said...

This sounds like a terrible idea to me. I'll be happy to support a carbon tax that takes effect at the production stage, or if need be, coupon-based rationing of specific items such as gas and meat, as was done during World War II. The trouble with consumer-level total energy rationing is that to identify the actual energy cost of every action I take in my life, you will have to have a literally totalitarian society. I don't want a spybot following me through the store to see whether the shirt I buy is handwoven, or a cashless society in which Big Brother's computers record every nickel I spend. If the machine-woven shirt costs more nonrenewable energy, let the manufacturer be taxed for that energy, and let them pass on the cost by making that shirt more expensive. Same for other energy-gobbling goods, like meat and gasoline. It may now be the business of the government to ensure that those who eat factory-farmed meat pay for the costs that meat imposes on the rest of the world; but it is not the business of the government to keep tabs on every bite I personally purchase.

Moreover, if everyone has a personal carbon ration card -- soon, no doubt, to be an implanted microchip, for those who don't want to be made unpersons in case their purse is snatched -- you will have many, many cases in which people use up their allotment too quickly, whether on foolish food choices, shopping, etc., or necessities like heat and medical services, not realizing, or helpless to avoid the fact, that they will be forbidden to run the furnace (or buy food) in December. Talk about no man being allowed to buy or sell without the mark of the beast! How long do you think it would take them to think of eating bureaucrats?

Then, too, are the kiddies going to get their own little ration cards, so that they can contribute to things like household utilities use? If so, the system will follow Jim Merkel's ill-thought-out obsession in Radical Simplicity with square feet, etc. per capita: given a house the same size as mine, but two kids, the neighbors will be able to use twice the heat and electricity and be called equally frugal. The Quiverfull Mothers who breed like rabbits will live far better than the rest of us, even though objectively they contribute far more to future environmental degradation. Don't want to give kids individual rations? Then you're basically forbidding people with many kids to feed and clothe them. Maybe you'd like to think this through in more detail before you support it.

jewishfarmer said...

Anonymous #3, that's an interesting question - would we have to have a totalitarian society in order to calculate carbon costs of things? I share your concerns about increased monitoring, and am open to the notion that carbon expenditures should be rationed only on certain items, but it seems to me that any kind of externally regulated system raises this issue - for example, do we really want to give them our money, more than our information? Ration books would also have a great deal of potential monitoring and analysis.

I'm certainly not at all convinced that the best possible solution would be a credit card model - perhaps we could go back to paper ration books, although they would be easier to counterfeit, or something else untraceable. But I don't think requiring manufacturers of any kind (with serious monitoring) to mark out the "carbon cost" along with the price would necessarily result in a totalitarian society. That is, I don't think there's any reason why the monitoring burden couldn't rest on corporations, rather than individuals. You get X ration, and you use it at the cash register - the people who are supervised are the ones who manufacture the goods, in order to not have them lie about how much carbon is in it.

The problem with taxation is that it ends up being regressive - we end up increasing the divide between rich and poor, rather than decreasing it. And not only does that increase inequity, but it means that there are no absolute limits on how much carbon rich folk can consume. Plus, do you really want the Bush administration to have more money to invest in oil wars?

Besides, what's bad about eating beauracrats ;-)?

I agree with you - people will screw up and end up without heat or food. That happens right now - and I'm strongly in favor of strengthening poverty support programs, if only because peak oil and climate change most likely mean most of us are going to get poorer. But I don't think that's an argument against the scheme - right now, poor folks run out of heat and food all the time, when things are rationed by price. What you are proposing is expanded price rationing, which comes with some ethical issues, IMHO.

As for children - my proposal would be that families get their rations pegged to families of four (I've articulated this in more detail in prior posts on population.) That is, a family of my size would get 2 adult rations and 2 child rations. We would also strengthen poverty support programs, and educational programs as well. Personally, my family of six lives on just over 1/3 the energy that an average family of four uses, so I would tend to say that rationing would have to get very tight before people's children would have to starve. This would provide a strong economic incentive not to have more than two children, but wouldn't do much more to penalize people who value their kids more than their energy. It would have to come with educational programs as well - but so would the whole system.

None of these solutions is perfect, but I'd tend to support one that didn't reinforce the vast extant inequities we've got. But I'm open to persuasion for other programs. But one of the things I think is hardest for comparatively wealthy first worlders to grasp is that peak oil and climate change mean the end of economic growth and an expansion of poverty to include many of us. So I tend to think that bottom-up thinking is going to serve more people than top down.


jewishfarmer said...

Hi Allen -

I think what Schor means is that African Americans are more likely to be satisfied with their standard of living and drop out of "keeping up with the Joneses" - I agree that it is perhaps a misleading way to put it. But freestyle rap is comparatively cheap, and drug culture strikes me as an awkward and troubling way of getting at ordinary norms of daily life. Just because they are more likely to drop out, as Schor put it, doesn't mean African Americans never engage in status seeking, it simply says they are better at getting over it. So I'm not sure that observing that African American communities contain status seeking is a refutation. Also, Schor was speaking of adults, rather than youth culture, which may be more status conscious in some ways.

I appreciate your clarification of Jevon's Paradox, which is helpful. I do think that the advantage of having one's new wealth pegged to *not* using energy is that it creates strong incentives to continue not using energy - that is, to not turn that thermostat us much. But the larger issue is this - poor people to a large degree tend to have less ambitious cultural reference points. Yes, they may start buying more stuff and they may turn their heat up some, but they are unlikely to go rapidly from being evicted to demanding a mansion - partly because new wealth won't allow it, and partly because their cultural reference point comes from people who don't have mansions. Jeremy Seabrook says something along the lines of "the reason we don't understand the poor is that their desires are so modest" - and Schorr finds that to be true - she notes that poor people in the third world tend to dream of bicycles, not mercedes, and poor people in the rich world tend to think in terms of basic home ownership, rather than a three car garage and a master suite. So I think that things hold - it isn't a perfect solution, and I am genuinely open to persuasion that there is a better one, but I have yet to see anything proposed that I personally prefer.

At this point, I'll be thrilled if we do anything, of course. This is mostly hypothesis.



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