Why We are Getting More for Less

Joakim Book

– November 19, 2019

With strong enough libertarian priors, it doesn’t matter what the question is – more capitalism is always the solution. Such an extreme position is surprisingly hard to argue with: capitalism generates wealth for all and creates the very resources that spend-hungry politicians can later tax and redistribute; core tenets of capitalism such as more secure property rights and well-functioning financial systems support economic growth; the freer the economy, the higher GDP/capita; not to mention that moving towards capitalism in the last decades has lifted billions of people out of poverty. On the basis on these observations, the more capitalism our world experiences, the richer and better off we get.

Few people accept this. Even among those who spend their careers studying markets, this seems like wishy-washy utopianism. One of the first things a capitalist sceptic would raise is capitalism’s impact on the environment, as for example seen by the large majority of young people that endlessly worry about climate change.

In our minds, capitalism is synonymous with chopping down trees and exploiting the earth. Business, especially Big Business, is routinely “caricatured as rapacious predators of Earth’s bounty.” “We cannot have infinite growth on a finite planet,” reads a common objection and activist slogan. St Greta’s speech to the UN in September famously objected to world leaders and their “fairytales of eternal economic growth.” If capitalist growth is truly wrecking the planet, perhaps we should slow down the capitalism a little?

Thankfully, capitalism is not wrecking the planet. At least that’s the message in a brand-new book with the stunning title More From Less by Andrew McAfee, a researcher at the MIT Sloan School of Management and co-director of the MIT Initiative on the Digital Economy. His previous book, co-authored with Erik Brynjolfsson – The Second Machine Age – dealt comprehensively and optimistically with technological change, a topic that McAfee continues to investigate as it relates to environmental problems.

McAfee’s book is both timely and persuasive. In a year filled with teenage climate strikes and massive protests against the greenhouse emissions that activists fault the capitalist system for, a message that clearly shows capitalism’s beneficial impact on nature is much welcomed. While advocates like Alex Epstein objects to the anti-humanism of climate activists by elaborating the moral case for fossil fuels, McAfee accepts the activists’ goals. Yes, humans need to stop degrading our planet, we need to stop polluting the earth and start living more sustainably. The beautiful thing is, says McAfee, we don’t need to overhaul our current economic systems – we just need to do more of what we’re already doing! Right out of the gate, McAfee forcefully sums his argument:

“We’re now generally using less of most resources year after year, even as our economy and population continue to grow. What’s more, we’re also polluting the air and water less, emitting fewer greenhouse gases, and seeing population increases in many animals that had almost vanished. America, in short, is post-peak in its exploitation of the earth.” (p. 1)

You heard that right: Rather than being on the brink of the Sixth Mass Extinction, we are already employing the tools we need to solve climate change. How can that be?

I think of McAfee’s explanation as “1-4-4”, the “what” followed by “how” and “why.” One concept – Dematerialization – consisting of four “paths” – “slim, swap, optimize, and evaporate,” (p. 111) – and fueled by four trends, the “four horsemen of the optimist,” – Technological Progress, Capitalism, Public Awareness and Responsive Governments. 1-4-4.

First, the concept. Dematerialization simply means that we’re using less stuff. Not necessarily fewer items or fewer goods, but the material and energy used to produce them – what we take from the earth – is shrinking, even while the American economy and population has been rising. Since around the year 2000, total consumption by Americans of core raw materials such as stone, timber, cement, copper and aluminum has flatlined or fallen. Even while agricultural output has increased, the total use of water, fertilizers and farmland has dropped (pp. 79-83).

Over the decade since 2008, the U.S. economy has grown by about 45% and the population by about 8%, but the total energy used by Americans has fallen by 2% (p. 83). This decoupling completely overturns most people’s implicit assumption about voracious capitalist production: for the last twenty years, we have no longer needed more and more raw materials to fuel our so-called “fairytale.”

We have seen this tendency on a global scale as well, even though developing countries are still increasing their use of raw materials as they are growing: since 1990 we have managed to squeeze out more economic growth per unit of CO2 emission than before – energy use is gradually being decoupled from our economic activities; “economic growth is not the enemy of the environment.” (p. 261).

Second, the four paths – the “how” of McAfee’s story:

Slimming is the common process of making things lighter and less material intensive. Soda cans are reduced in size as we figure out technology that uses less material. More powerful engines with better fuel efficiency are smaller and lighter than their predecessors. Almost every item you can think of has seen this tendency of reducing the amount of resources that go into producing it.
Swap: plain old substitutability, as has always been a core economic argument for resource preservation; as we develop better technology, old and inefficient items become obsolete. Fracking reduced the price of natural gas, the burning of which released fewer emissions per unit of energy than coal. The consequent substitution reduced emissions by American households.
Optimize: by having better knowledge of supply chains, we can reduce the time that capital sits idle. With better scheduling and loading practices, fewer total planes, trains and delivery vehicles can service the same amount of passenger load they used to. Think what Uber replacing private ownership of cars will do to raw materials going into total car production.
Evaporate: how many (surprisingly energy-intensive) gadgets that Americans used to have, now fit into your smartphone? This one technology literally evaporated the use for dozens of other gizmos.

This is all well and good, Mr. McAfee, but haven’t the rich Westerners simply outsourced their emissions to the Global South? As Daniel Tenreiro asked at National Review, hasn’t globalization led to a transfer of emission-heavy industries from the West to predominantly China, where the emissions from Americans’ consumption now show up in China? Not so. The graphs are constructed on data from the Global Carbon Project, which “take into account the carbon from products that are produced outside the United States (in China and other countries), but consumed by Americans.” p. 83). What we see is a genuine reduction in material stuff; the American economy runs on a decreasing quantity of fuel (metals, energy, raw materials).

Third, the “Four Horsemen of the optimist” – the “why” of the story. The first pair – Technological progress and capitalist, profit-seeking competition – should not come as a surprise to an informed reader; technological development is what allows companies to engage in the four paths described, and capitalist competition is what forces and incentivizes them to do so. The author freely admits that this is not an easy sell: “this is not a universally popular conclusion. Ever since Marx, capitalism has been passionately opposed by many – and view with much skepticism by many more.” (p. 5).

Perhaps it should be 1-4-2: the benefits of ‘public awareness’ and ‘responsive governments’ are suspicious. As capitalism and markets allegedly can’t deal with externalities (p. 142), we need active consumers demanding sustainable capitalism, and vigilant governments regulating emissions through carbon taxes and cap-and-trade schemes. This is where the main dissonance of McAfee’s work reveals itself, as he joins the chorus of complaining that corporations don’t have the incentive to clean up spillover effects of their production.

Contained in one of his four paths to dematerialization are input costs; companies don’t “Slim” because they are kind, but because capitalist competition and profit-motives urge them, and technological progress allows them. As McAfee writes: “Since raw materials cost money, profit-maximizing companies are particularly keen to find ways to use fewer of them.” (p. 234) Energy use, the kind that produces the negative externality we are most concerned with – greenhouse gases such as CO2 – is emphatically also an input into production. Why are firms naturally incentivized to cut down on the use of raw materials to save cost, but unable to mitigate their own energy use? And why does McAfee not spot this obvious disconnect in his argument?

Had McAfee followed the logic of his excellent analysis of dematerialization, capitalism and technology into the topics of “market failures” he would have realized that markets already have the appropriate tools at their disposal. Interestingly enough, in chapter 15 McAfee shows private sector actors such as Google being the largest purchaser of renewable energy and transport companies like United and A.P. Møller-Maersk credibly aiming for carbon neutral operations. One may see these as simply profit-maximizing moves in a society where McAfee’s third horseman – public awareness – works; to consume its products, Google’s customers demand certain standards. That’s no different from normal capitalism and McAfee could probably merge this horseman with capitalism.

On p. 117, he properly puts “market failures” in quotation marks. In the world of textbook perfection, economists like to draw up so-called market failures. When – as public choice economists have repeatedly pointed out – we accept that governments suffer from precisely the same obstacles that private sector actors do in solving these “failures,” the market-failure charge is much less convincing. The same limit of enforcing intangible property rights and the transaction costs of pricing emissions also limit a government’s ability to correct such problems.

Analytical symmetry, as popularly shown by Jason Brennan or more recently by Peter Boettke reviewing John Quiggin’s Economics in Two Lessons – a work that makes the same mistake as McAfee’s – forces us to accept that suboptimal outcomes labelled “market failures” are even less likely to be solved by governments. Boettke writes

“much of the great advances in economic science during the 1960s-1990s was blowing up the mythology of market failure and the idea of government as a corrective.”

Even on McAfee’s own terms, the reliance of government makes little sense. In discussing the backlash against nuclear energy as well as the equally unfounded hostility towards GMOs and vaccination, a responsive government that listens to the illusions of its population would be disastrous for the environment. His worries about a disconnected society and rise of authoritarianism might be timely, but inconsistent with his argument. What makes you think that politicians elected on rejecting intelligent thought on the back of an authoritarian revival and populist uprising are going to be effective advocates for sensible environmental regulation?

Errors of Omission and Commission

In a few chapters towards the end, McAfee considers two other major social upheavals; income inequality and wealth concentration, and the disruption of traditional communities that came with it (not necessarily because of it). The topic is underanalyzed and fits uneasily with the rest of the thesis. I imagine that McAfee (or his editors) insisted on a more “balanced view” to his otherwise very rosy story; nobody would believe his main thesis unless he at least complained about something. Perhaps acceptable for PR reasons, but it serves to unnecessarily lengthen the book with superficially analyzed material that does not reflect McAfee’s expertise.

Instead, the book could have benefitted from a more serious consideration of common-pool resources, particularly the many thrilling projects in Sub-Saharan Africa. During his discussion of threatened animals and government laws to protect them, he briefly mentions a few countries that “are effectively managing their herds,” (p. 154), but he forgets the privatization efforts that underlie those efforts. South Africa, home to 70% of the remaining white rhinos recently legalized the trade in rhino horns. Not for capitalism to “eat”, as is McAfee’s dismal fear (p. 161), but for ranchers to finance breeding and protection of rhinos on their private lands.

Even the idea of making animals extinct through the voraciousness of capitalism is odd; most animals that capitalism “eats” are, evolutionarily speaking, quite successful – at least if success if counted in a species’ numbers and expansion. Cows, pigs, and chickens are not on the verge of extinction. Similarly, threatened animals put under capitalist stewardship saves them; South Africa’s experience with the white rhino is a case in point. By privatizing the animals and allocating ownership of them either to breeders for sale or to the native indigenous populations for eco-tourism, many developing countries with stunning wildlife have managed to control poaching. The animals are more valuable alive than dead, as the former poachers-turned-gorilla-guides in Uganda attest to. Curiously, a few chapters later, McAfee mentions this as a possible solution to common-pool resource problems, but finds it “odd” (p. 261) that fishermen and duck hunters whose livelihood and sport relies on killing animals are the prime source of their protection.

With a proper understanding of capitalism and property rights, it makes perfect sense.

If I may offer a final piece of criticism, it is directed at McAfee’s historical sketch. As pointing out mistakes in historical accounts is the burden of all historians, the story we are given of the Industrial Revolution is remarkably confused. Not only does he misdate its origin by around two centuries, McAfee seems to believe that the increase of fertilizers via bones, Chilean nitrate, and guano fueled the Agricultural Revolution, which allowed for the Industrial Revolution. According to McAfee, the transportation to Europe of these potent fertilizers was only made possible by steam engine-powered ships. At least three things are entirely off with this story:

The Industrial Revolution, understood as the sustained upward trend in GDP/capita, is generally dated to the 16^th century in Holland and the 17^th century in England, centuries before Humboldt discovered the rich guano deposits on islands off the coast of Peru. The Industrial Revolution has much deeper roots than one would think after reading McAfee’s brief account.
The “Agricultural Revolution,” while its contribution and relation to the Scientific and Industrial Revolutions is much disputed, is generally dated to the 1600s and 1700s. This is well before the discovery of Peruvian guano and large-scale importation of nitrate from Chilean deserts (1802) and much before its large-scale importation to the West (1840s). While crop rotations and nitrogen-fixing plants like turnips and clover were important features of the Agricultural Revolution and contributed to increased agricultural yields, they did so well before McAfee’s timeline and were not fueled by South American imports.
The iconic steam engine was generally marginal to the Industrial Revolution as water power was the dominant source of energy for much of the relevant time period. Steam-engines made their contribution to the Industrial Revolution by carding in cotton-spinning, by drawing water from flooded mines and only occasionally contributing to factory production. Steamships were certainly not dominating maritime trade until the second half of the 19^th century – much too late for the story – and did not bring guano and nitrate to Europe.

This historical limitation does not detract much from the author’s main case. He is, after all, not a historian and he’s not primarily making historical arguments. That he got his facts and historical causal mechanisms backwards is something we may overlook as his main case does not rest on that. While mistaken models of the world are harmful – indeed, correcting one such model is McAfee’s main achievement – this blunder is permissible as the informed reader knows that it’s mistaken, and the uninformed one is more likely to focus on McAfee’s main environmental argument than the historical escape from Malthusian traps.

As a skeptic of governments’ ability to do anything well, and a huge proponent of markets and voluntary bottom-up orders to satisfy human wants, my priors are stacked in favor of McAfee’s two first horsemen and against his latter two. Nevertheless, it’s an unusual and optimist take on environmental problems that is much welcomed.

In contrast to the revolution that modern environmentalists call for, the message of McAfee’s book is truly revolutionary: embrace technology, let innovation flourish and unleash capitalism – to which I would only add a missing skepticism of governments’ abilities. McAfee’s 1-4-4 show us that we don’t need to uproot our current societies. What we’re already doing is working, and McAfee deserves much praise for having brought it to our attention.

Joakim Book is a writer, researcher and editor on all things money, finance and financial history. He holds a masters degree from the University of Oxford and has been a visiting scholar at the American Institute for Economic Research in 2018 and 2019. His writings have been featured on RealClearMarkets, ZeroHedge, FT Alphaville, WallStreetWindow and Capitalism Magazine, and he is a frequent writer at Notes On Liberty. His works can be found at www.joakimbook.com and on the blog Life of an Econ Student;