Markets Won't Save Us: A Proof

 

Jeff Bezos has recently made changes to the Washington Post (WaPo) editorial policy to emphasize "free markets and liberty" (here). Sorry Jeff, "free markets" won't save us (no matter how much the WaPo writes about them) and here's the proof.

But first, I'm reading an excellent book by Quinn Slobodian titled Globalists: The End of Empire and the Birth of Neoliberalism. I haven't finished it yet, but I would recommend downloading the Kindle version (yes, this gives some money to Mr Bezos but I appreciate Amazon); it's an easy read on your phone while your are waiting somewhere for the future to  emerge. The book goes into the entire history of Neoliberalism (not just the US version) and Neoliberalism is all about markets. Basically, the European Neoliberal argument is that the economy is too complex to understand with simple mathematical models (the Limits-To-Growth Models or the Neoclassical Economic Growth Model or the DICE model) so we have to write laws protecting self-organization markets, the only reasonable way we know to control the Economy. Unfortunately, markets won't control both the Economy and the associated Environmental Systems to include the Demographic system. Here's the proof.

Let's start with the simple Kaya Identity (directed graph version above) used by the IPCC (see the Notes below). If we add employment markets, commodity markets, energy markets and carbon markets we get the directed graph at the beginning of this post. We don't have markets for global temperature or population (see my prior post here). There is nothing in the full market system that controls global temperature to make sure it will not exceed some tipping point and make the Earth unlivable. However, temperature change will happen gradually and begin having negative effects on population via the dashed Malthusian Feedback loop in the original directed graph. Parts of the Earth will become unlivable deserts and flooded coastal areas (with sea level rise). Increases in global temperature will increase forest fires and make affected wooded areas unlivable or at least uninsurable.

Many people, some of whom read my posts, think that Malthusian Crises can never happen or that Technological innovations will allow us to adapt to all Environmental crises (TechnoOptimism). Technological fixes require some drastic changes to the Kaya coefficients in the directed graph above. And, the coefficients of models are expected to change slowly (how quickly will all-electric vehicles be adopted?)

The coefficients e, q, e, and t are parameters in the model and will have to change rather quickly to avoid Environmental Tipping Points. TechnoOptimist assertions can be tested using the Kaya Identity. I'll leave that to you to work out the math as an exercise. You have the tools now.

Notes

Starting with the Kaya Identity also disproves the Neoliberal assertion that the Economy is too complex to be understood. The Kaya Identity is true by definition: if you add more people (N) to a SocioTechnical system you will eventually increase employment (L) which will increase output (Q) which will increase energy use (E) which will increase CO2 emissions and finally raise global temperature (T). If you don't accept the Kaya Identity, plug in some numbers to a program I have written (here) and run the program. Or, plug the parameter values into the Kaya Identity and do a back-of-the-envelope calculation (see more discussion here). To understand Technological change, modify the parameter values. Remember, the Kaya Identity is a model not the real TechnoSocial system. Yes, the real system cannot be understood with arm-chair speculation; models are all that we have.

The Kaya program (here) is very general and can be used to "prove" the  TechnoOptimism position. But, do you really believe that growth can continue forever on a finite planet? This is the argument for colonizing Mars, but that won't work either. There won't be enough space ships for the exponentially growing population to escape from the over-crowded planet.

If markets won't save us, what will? My best guess is that we will continue to hope that markets will save us but in the end it will be Malthusian Crises that control the Kaya System--a topic for a future post. For the time being, you can experiment with the Malthusian Controller here.

You might still not be convinced that markets don't control the SocioEconomic system. Here are a few more proofs.

Let's just focus on commodity markets in the directed graph above. 

Since markets are assumed (by economists) to adjust instantaneously without delays, we can reduce this part of the expanded Kaya Identity to the directed graph above.   All we have done is to modify the L-Q parameter slightly. And, since markets must be stable, (1-pq) < 1.0. In other words, we have increased the impact of labor on production. What this means is that, if markets do anything and if markets are stable and if markets adjust instantaneously, markets increase growth rates slightly. It is a line peddled by Neoliberalism and will probably be emphasized on the WaPo editorial page.

The directed graph above adds a shock, X, to the reduced market model. 

And, as we have found out with the US Egg-Price Shock, instantly adjusting markets leave prices elevated until the shock is over.  Markets do not control shocks. On the other hand, it's not that Economic Planning could have done much about the Bird Flu Pandemic or COVID-19, for that matter.