Ms Mary Elizabeth Truss is now the United Kingdom’s Prime Minister, and godspeed to her in that role; it will not be a simple one. She has many challenges, of course, but all of them are coloured by the fact that she has less than two years before she is required, by a law passed by her predecessor David Cameron, to call a general election in 2024, just less than two years from her own elevation to the post. Along with her new Chancellor of the Exchequer, Kwasi Kwarteng, who introduced on her government’s behalf an anything but mini-budget last week at the Commons, she’s going to ride a very interesting, and very quick, ride in macroeconomics. Meanwhile, Andrew Bailey, of the Bank of England, has unhelpfully said that their supply-side stimulus plans will lead to higher interest rates: an observation which academically is uninteresting, but from a PR perspective, seems to indicate Bailey wants to be a jerk.
President Biden is riding a similar roller coaster, although he has the advantage of having been in office for a little less than two years. He continued the now-long-forgotten fiscal stimulus bills of his predecessor, Donald Trump, and managed to get a capital expenditure bill through Congress which – unlike the spending giveaways of the early days of the pandemic – just pay for long-deferred maintenance of US infrastructure. But with inflation now at 8% (depending on the metric), he’s also hanging on for dear life.
There’s an entertaining game on the Federal Reserve website which allows people to see how good they are at changing base rates. You start in (interestingly) an interest rate environment which is completely foreign to anyone who has been an adult in the last thirty years; this is a Laffer Curve game, so you would need to ask your parents or grandparents for help, and even then, if they don’t know who Arthur Burns was, you should just give up and go back to tracking the Kardashians on Instagram. In any event, the game starts with a random inflation rate and a random Fed Funds rate, and you – as the omnipotent Fed chair – change the Fed Funds rate in response to macroeconomic data (unemployment – remember, the Fed has to minimise that!) and fiscal spending and exchange rates and blah blah blah… I’ve played it multiple times, and the point of the game seems to be to convince you that the Fed governors have a really tough job and you, sad citizen, will never be up to the task. They never ask whether the Fed governors are up to it either, but hey, I get it, this is their website.
I’ll bring up one last item before getting to the point. I am a willing victim of the Wikipedia default mainpage, at en.wikipedia.org for those of us who are most comfortable in English. Today, there was a link for a climate scientist named Chip Fletcher, who makes the blindingly obvious observation that “our communities are scaled and built for a climate that no longer exists”. But the observation clearly is interesting because it made the front page of Wikipedia’s daily update: someone on their staff thought “wow, people out there probably haven’t made this connection before, this might be interesting.” And of course it is interesting, but only because so few people understand time dynamics in complex systems.
I cut my teeth in macroeconomics a long time ago, but one of the fundamental observations of Volcker, Friedman, et al was that any given change in base rate policy by a central bank – that is, any fundamental change in the cost and carry of a fiat currency set by the institution designated to grant access to said currency – has at least an eighteen month lag before the broad economic impact is fully absorbed. I also learned ecology – oddly – for the first time at the hands of a slightly crazy biology teacher at Cape Elizabeth High School, who used to throw small black balls representing hydrogen atoms at us when we failed to properly model organic molecules. He used to say that environmental systems never change overnight – they change over decades, or centuries, and he brought up as an example our local Presumpscot River, which was not much different than an open sewer in the early 80s, but was getting better, because the Clean Water Act in the 1970s was almost fifteen years old, and every year, the river was getting better. He told us that maybe our kids would be able to fish or swim there (he probably missed it by a decade, but hey, that’s prediction), but he also said that just because it would take 50 years to make up for 300 years of waste and ignorance, we shouldn’t turn back.
So now I’m at my point.
Climate change is happening, and yes, it’s human caused – even though the timing of our human intervention over the past three centuries of industrialisation may be coincident with other astronomical rhythms of sun activity etc. that serve to emphasise the effects. But humanity has caused much, if not all, of the change in our climate of late, and we’ve spent centuries creating it, and while we’re decelerating the pace of change, we’re still not actually reversing it. That means we’ll have centuries – at least – of reacting to the impact. Bill McKibbon, who keeps saying “we have No Choice but to stop our behaviour or else the world will change irrevocably” is thus an idiot, and ignorant of systems behaviour. He is roughly as old as my father, born in the late 1930s; even when he was born, the planet had long since passed the point of no return for being burdened by the impact of human actions on climate. What we can do now is be responsible – reduce our carbon output, optimize our energy consumption where possible, think carefully about consumption and materialism – but what we can’t do is reverse what had started when England, France, Germany, Japan – hell everyone – started burning coal and oil and natural gas back 200 years ago. And it would be deeply hypocritical of us to tell India and China and Africa “hey, you guys have to stay poor, because we already harmed the atmosphere with the carbon we burned to get good stuff” when we already know we have a couple of centuries of downstream impact which haven’t been felt yet.
Climate change is hard because frankly, we’ve already cursed our grandchildren, and their grandchildren, and we’re now relying on us – who grew up enjoying hydrocarbons – to somehow curtail our addiction, and to develop a picture of rational chemical energy consumption (while we’re still trying to perfect fusion and solar power) for our children and their children that will make the future maybe, possibly, sustainable. In the interim, though, get over it: get used to the forest fires, and the smoke infecting cities on the West Coast, and the floods in Pakistan, and the step function in tropical storms affecting Canada, and the droughts everywhere, and the floods everywhere else. It’s over, people: the world has changed and it’s our fault and no one alive today, even if we do everything right, will enjoy an optimized planet in their lifetimes, because even if humans might possibly live to be 150 years old if narcissists like Elon Musk pull off their pipe dreams, the environment as a complex system is going to take at least the 300 years it took for us to carbonise it to resume normal operations, and more likely, will take a factor multiple of those 300 years to truly work out the impacts we’ve created.
And so we get to the economy, which is no different. In the US – which issues the numeraire currency of all human societies, having replaced gold and its semi-humorous proxy, the pound sterling, back in the 1940s as the core representation of temporal and instantaneous value among individuals independently choosing to engage in trade to take advantage of the differences in productivity, access to primary inputs, and possibilities of creation that exist across all however many billion of us there are on this planet – the Federal Reserve from time to time changes both the quantity of central bank money, and the price paid for that money. But because all seven or eight billion of us transact, at a basic level, in dollars, and we create our personal and corporate value over longer time spans than the instantaneous rate at which the Fed changes interest rates or ceases or starts creating central bank money, it takes awhile for those changes to take place. Paul Samuelson gave me the rule of thumb in, I think , the seventh edition of his classic textbook of economics, of eighteen months lag being a good assumption. That is, the Fed changes rates (or reserve requirements), and roughly eighteen months later the impact fully is absorbed by the broad economy through credit creation or destruction and the impact that has on economic activity. Friedman didn’t seem to disagree with him when I read his and Anne’s treatise in high school.
The economy is complex, and while we endow certain players with outsized power, their power is not instantaneous. Inflation in the US will be here for awhile, no matter how fast Powell and his ilk observe the lessons of Volcker. At least he has a term of office that outlasts the president in office; Liz Truss has barely two years to see if her fiscal policies can reverse the international trade insanity that was Brexit and the monetary expansion that Bailey and others knee-jerk installed in response to a small virus that made all of us go temporarily insane. All complex systems respond with various degrees of delay – no matter what we observe in the Dow, or the cable exchange rate.
And that should give us pause when thinking about the most complex system of all in which we live, that of our planet. We’ve spent 300 years polluting it – but not so much intentionally as unconsciously, as we’ve experimented with this marvellous thing we have which is our own capacity for exploration. We’re actually quite lucky that within only 300 years – maybe eight or ten generations – we’ve realized the self-reflective capability to think hey, maybe what we’re doing is really bad for water, and for soils, and – holy crap – maybe for the entire planet’s atmosphere and weather structure. Maybe we should dial back – but because our impact took awhile without our being conscious of it, we built into our society structures which now depend on pollution, and destruction, and bad things, just to make sure we have food on shelves at the Aldi on the A13 in Southend-on-Sea that sustains thousands of people who never, ever, could have lived there in 1722, when there was a farm there that barely sustained a village of ten or fifteen people. Those structures cannot be deconstructed in a day, regardless of Bill McKibbon’s exhortations – but even if they could, it still wouldn’t affect the world of our children.
My son, and his friends, will live in a world that’s already locked into place. It’s warmer, harsher, more complex, and probably harder to work with. But there’s nothing we can do about it now, at least for their direct benefit, except to help them get ready for the task which will be at their hands to manage, which is simply to survive this new and crueler world which we, and our ancestors, have gifted to them. We can use resources better today, sure, but we need to be blunt and honest: our kids, and their kids, and probably their grandkids, are going to suffer through an Outward Bound exercise the likes of which we never had to contemplate.
Delayed responses are the reality of complex systems. For those who would deny the long term consequences of our actions, I have no patience: their ignorance and stupid attraction to linear consequences is demonstrably worthy of contempt. For those who would somehow claim what we can “make a difference for our kids”, though, I share a similar contempt. My job is to help my son, and his friends, prepare for a bruised and cratered world that wasn’t my own at his age, and to help him think beyond an election cycle, or the time until he’s middle aged, or the time until his children are middle aged. Our job as human beings – members of the first species on earth that seemingly combines sentience, with self-awareness, and with the capacity to project forward the consequences of our choices – is to arm our children with the knowledge that their event horizon is beyond their own lifetime. Eternity is not for the blessed; it is for the as-yet unborn who will choose their path on a planet we cannot imagine.