Reasons To Be Optimistic About The Economy And The Environment

What’s the point of saving for the long run if there isn’t going to be one? That question, posed by a young, highly-educated professional woman was relayed to me by Larry Siegel, my most recent guest on the Top Traders Unplugged podcast. What she meant by there being “no long run” is that the cumulative effects of climate change are going to be so severe that the Earth will be nothing but a rotating cinder in 50 years. So, yeah, modern portfolio advice kind of breaks down in that scenario.

Stories like this, and the depressing pessimism that underpin them, motivated Siegel to write Fewer, Richer, Greener: Prospects For Humanity In An Age Of Abundance. His thesis – not only will there be a long run, but the demographic, economic and even environmental data suggest it will be a great time to be alive.

If Siegel was to hire me as a branding consultant I’d suggest changing the order to Richer-Fewer-Greener. The reason has to do with his own succinct summary of how economics works – people respond to incentives.

Capitalism, big improvements in economic liberty, combined with the ability to access and distribute energy, have turbocharged wealth creation in the last two centuries. The data, shown below, are striking. And over and over again as societies become richer, the economic advantages shift to smaller families and, well, people respond by having smaller families. The world is going to keep getting richer and that means (eventually) there’s will be fewer people.

Richer = Greener

This brings us to the “Greener” bit of the book. As a society initially grows wealthier, pollution per person rises. However, pollution doesn’t just keep on growing with income, it eventually peaks and then falls as economies learn how to do more with less. Siegel provides evidence that this happens surprisingly quickly – somewhere between a per capita income of $7,000 (India’s current level) and $15,000 (Brazil’s).

Combine this idea with the trend of increasing global wealth and we ultimately get to a “greener” world. A couple of caveats. First, the global population is going to keep growing for several decades, so even if each person pollutes less, there will still be more absolute pollution until the world’s population eventually shrinks. Second, this growth will be concentrated in the world’s poorest region – sub-Saharan Africa. Those economies will pollute more per person for a time as they develop. So while the very long-run trends are for a greener world, we still need to take action to mitigate the impact along that path.

What actions will make the biggest contributions?

The Four Horseman Of Climate Action

Urbanization. It’s easy to perceive cities as bad environmentally, but think about what we’ve just discussed – greater wealth leads to less pollution. Cities allow people to specialize and trade efficiently, that increases wealth and with that comes a better environment. This is especially true in developing countries where subsistence farming is a huge strain on natural resources. As people are able to leave low-productivity agriculture and live in cities, the environment improves.

Nuclear Power. Having grown up with the Three Mile Island cooling towers visible from my backyard, I pushed back on this idea. I was there for the 1979 accident and know people who’ve worked at the plant most of their lives. Let’s just say the conversations I’ve had through the years have embedded me with a deep skepticism of nuclear safety. I’ve always felt there was a disaster risk that is impossible to quantify. But Siegel talked me off the ledge.

He believes the French model of small, simple, standardized plants makes servicing and safety issues manageable. And he’s a realist – we are simply going to need all the energy we can get to make the world richer (which in turn makes it greener). Nuclear is a much better alternative than coal for producing power when solar and wind sources are down, which they inevitably must be.

It’s also possible to argue that nuclear energy can make the world safer. Imagine, for instance, how radically Russia’s power and influence would be curtailed in Germany (and Italy) powered their economies via domestic nuclear power instead of Russian gas.

Genetic And Ecosystem Engineering. Genetic engineering helps by allowing us to grow food more efficiently – higher crop yields, lower transportation costs and adaptability to changing climates. There are a ton of fun, fascinating stories; read Siegel’s book to get a feel for what’s possible. One new, “game changing” example that’s emerged since the book’s publication is Chinese technology that will allow rice to be grown in salty water, paving the way for potential food self-sufficiency there.

Ecosystem engineering – manipulating the environment directly – is the most speculative area. There is no shortage of wild ideas – artificial “trees” that act as carbon sinks, giant sunglasses for the earth. Siegel is rightfully cautious about how much of an impact they will have. But, before dismissing them, remember technology almost always takes us by surprise. If you were on the beach in North Carolina watching the Wright brothers fly their wobbly airplane 10 feet off the ground for 59 seconds you probably wouldn’t have predicted that humans would fly to the moon only 66 years later.

Is there a paradox in the book’s message? In other words, if we give assurances that we can mitigate and adapt to climate change, is there a risk that we get complacent and take our foot off the gas (sorry, I couldn’t resist) in terms of making the necessary changes?

No, I don’t believe that’s a risk. Indeed, endemic pessimism and nihilism is a much greater risk and Siegel’s book is an excellent antidote to that. Don’t spend all your savings just yet.