This is as simple a story of this amazing change in our economy. What happened is that the economy ran into increasing resistance from the environment. The inequity came from how that slowed down wage growth more than the investment income growth. Below are two simple ways to understand the natural cause of the problem, that were posted to the discussion on NPR.org today.
Without a major rethinking of our growth strategy it really can’t be fixed, not by this congress or any other, as it’s “natural”. The problem is our growth strategy is running into ever increasing natural “drag” and “resistance”, that affects labor more than investment earnings.
See also my recent articles:
“Kepler” – a great story of student discovering how to understand the big picture
“a Whole Systems view – Piketty’s “r > g” – Relating it to Thomas Piketty’s book on global inequity
- Comment 1
You never seem to be allowed to talk with the people who know why wages began stagnating in about 1970. There are very specific natural reasons.
Keynes predicted it. I’ve detailed it to the Nth degree. It’s a perfectly common problem in many ways. The simple word to call it is just “drag”. The economy is meeting ‘drag’.
You experience drag as a kind of resistance to what you were doing before. There are millions of kinds. The evidence of very numerous kinds of resistance increasing at accelerating rates more or less all together at once, for the whole system… goes back about a century.
You should talk to people who know.
- Comment 2
None of you seem to understand that economies are designed to run themselves. Nobody mentions that in the media either, or even the smart pundits. I guess it’s because the people you hear talking about it are really just competing for attention or promoting their ‘angle’ or don’t know any better.
The real situation is that economic growth is stimulated by the money earned by investors being added to the pool of money for creating more businesses. So with growing investment you get a growing economy,… and it’s markets expand, using more and more of every resource they can find on earth…, till something goes wrong.
When things are going right, like in growth periods up to 1970, the incomes of the rich grow faster than anyone else’s, *but* there’s enough left over to “trickle down”, so the incomes of everyone else keep growing too, just a little slower than for the rich. After ~1970 the relative rates started spreading apart further and further, till most people don’t even increase their incomes as fast as inflation…
One of the things going wrong is the economy is running into natural resistance, from its growth having changed the world, to make it less bountiful. The economy is slowed down by needing to use more costly resources, from increasing complications of regulation, increasingly complex designs and teamworks needed to get anything done, increasing costs of global competition and conflicts between industries demanding growing shares of diminishing resources.
What’s most obvious if you look at the data is that after 1970 growth continued for the richest and not for the rest of the wage scales. I think there were all the above problems creating drag for the whole system, effecting the productive economy and lower incomes the most, and the people at the top the least. People of course saw that was where to make the money, and those that could went in to investing to use money to may money that grows without actual work. Investing is a kind of ‘work’ where the more money you have the more you earn, without any actual “labor”. So, that kind of earning really took over.
There’s lots more interesting to say, looking at the economy as I do as self-guided system driven by people’s choices and the capacities of the earth the find to use and use up that way. The bottom line, though, is that there’s too much unproductive investment.
The one and only way to reverse that (other than “resetting” the game with gigantic financial collapses) is for the wealthy to *spend* their earnings rather than *accumulate* more unproductive investments. JM Keynes actually proposed that would be necessary, as the solution for this very problem, that he saw as likely to come up in what he saw as the relatively near future, from the 1930’s.
I’ve written lots on it myself, but it’s “unpopular” because you need to look at the financial implications of our having been running into increasingly resistance to growth as approaching limits, for 50+ years…. That subject was made socially “taboo” in discussion groups not unlike this one all over the world in the 70’s, in case you don’t know about that. And the whole world went to sleep in total denial of there being limits to growth or anything eles, population too.
…and the laws that move you from maximizing power to maximizing resilience.
Like many young college women Kepler awoke that morning with other things on her mind than the project she had planned for the day. She had been dreaming about how she loved her drawers of personal things, in colorful piles, neatly rolled, in little bags and folded, each in its own style and fit together. Maybe she would become a “collector”, she thought, they gave her such a thrill. How nature was “quite a collector” too fascinated her too, creating all the natural world’s very special arrangements, with everything having it’s own individual home, utterly improbable in such number and variety, and so highly organized and grouped with fitting parts everywhere.
She’d also been told that lots of scientists thought nature’s patterns came from a natural law of energy, that everything sought to maximize its power, which honestly, just made her wrinkle her forehead… She did not know, of course, but thought there was something hidden in the magic of how things in nature so often yielded to each other, an obvious secret to how things come to fit so closely. So she quietly thought perhaps that seemed at least or was perhaps even more important.
What she had planned to do that day was use her old graphic calculator from high school, to do an experiment in rewriting the history of the economy, laughing as she said it that way. Could you show an economy as being responsive, seeking to get along, rather than just getting more and more aggressive in looking for, in the end, how to get in ever bigger trouble? What would it be like, she wondered, if people could be responsive as a rule. The idea had come up in reading that the climate change scientists, the IPCC, had said we needed to reduce world CO2 production to half what it was in 2010. It was only recently in fact that the world economy had been below that, and now everyone was saying we had to go back but probably couldn’t. She felt she had all the facts, though.
So she had the idea to just…
– totally redraw the history of ever growing CO2
– to show mankind as being responsive to the approach of climate change
She didn’t get it to work till quite late that night, but it worked! What she had of course been thinking about, and felt that anyone who mattered constantly worried about behind every other subject, was the strange continual way the human society was so energetically trying to destroy its own future. The evidence could not be more clear, with the ever faster consumption of everything useful on earth, that an economy maximizing its growth unavoidably does. Anyone can plainly see that happening, as climate change keeps accelerating faster than expected. Everyone hears about the ever increasing loss of natural species from disrupting ever more natural habitats too, and the impossible debts nations have accumulated making their decision making impossible, and so many other disturbing things.
It wasn’t a “debate” to her. It also wasn’t her “cause” either. She also did not really see it as her job to change other people’s minds. It was just something she personally needed to know, about her own life, and whether it could be meaningful. Continue reading Kepler
The trick is that there are two ways to do that. 1) you can add the money you earn from investing money, to increase what you then reinvest, so it multiplies what you take out (to put back in to take out more), or 2) you can use the money you earn from investing to take care of the things your investments built, or anything else.
Some links to other discussions of it are below, and a request for your comments.
Here’s an excerpt from a Facebook exchange. It goes another step in explaining why this particular difference, using profits from investments to build more and more to profit from, or to care for things, causes major confusion in our modern world. We want both, definitely want both! But they’re mutually exclusive and there’s a kind of “deadline” for making a choice that most people, for some reason, would quite prefer to ignore, as if there was no choice to be made
- Jessie Phyllis Rose Henshaw Speaking of money… Doesn’t “inequity” come from the wealthy PUTTING MONEY IN TO TAKE MORE OUT (and so to then put even more in to take even more out)? It *seems* fair… WHEN IT STIMULATES FASTER GROWTH, but that isn’t determined by people, but nature is it?
- Helene Finidori That’s a great statement Jessie. Could we say faster extraction? Also well I guess many want to put some input into something to get a little out (think of mom and pop savings for retirement). The question is to what limit… Could you plug this somewhere on the pattern language site? Because this is typically the ‘more of the same’ that any new solution would like to avoid…
- Jessie Phyllis Rose Henshaw Yes, I’ll put it there. If I’ve finally said it so people would ask questions, like you just did, then I’ll need help expanding on it so I don’t lose people with the details. The issue is *the balance* between the strains on nature and people and the increasing scale of the whole system.If it were a policy decision, it would be to “stop counting on an ever bigger windfall from the future”. The default way to do that would be to ask everyone to plan for a future of “pay as you go” and people with large investments to use their profits, primarily, to heal the strains on the commons instead of continuing to invest their profits in expanding our burdens on it. Mom & Pop’s savers tend to do that anyway, so no policy required!
Challenging Puzzles and Propositions
“Pattern Languages” give meanings to patterns in nature, theories, relationships or experience, but we often don’t know quite how. Like, we all tend to consider our own conscious view of things to be the world we and everyone else all live in… even though everyone is making up their own view of that. That kind of real world doesn’t fit into any simple explanation, of a world in which everyone is seeing a world that is in large part a reflection of themselves. It creates a lot to untangle.
One of the fascinating scientific subjects I research is how human understanding comes from narrative. Without getting too technical, narratives about relationships, environments and culture change issues come from people “observing the flows” of the natural processes, the flows by which those changes in our world take place. The basic starting point, then, is having some way to observe those flows. No awareness of the flows, *no story*!
This is such an important thing for combating our alienation from the breakdown of traditional cultures, really all around the whole. It’s quite an unfortunate side effect of the great eruption of wealth in modern times, and the ever more intense global competition fostered by the world economy doing it. A small part of how it disturbs our ability to tell stories about what’s happening to us in yesterdays post What is a “rights” agenda, with ever increasing inequity?
Mining live stories from big data is way to build human understanding
I ran across five wonderful examples this week alone, of ways to bridge the enormous cultural and intellectual divides the keep us from arriving at a common understanding of what to do with the earth. My topic yesterday saw how an economy structured to produce both ever increasing complexity, inequity results in the breakdown of traditional cultures and ways of knowing, a loss of stories for giving our lives meaning. Learning to see the problems can also be used to find solutions too, of course, the main one here perhaps just learning to see what we’er doing to ourselves. The thought process leads to seeing what strategies are failing us is not so different from that used for discovering promising new ones.
One identifies where the cultures that guide us lose track of what’s happening to them. The other discovers exposes the flows of events in a way allowing us to create the new stories that will matter in our lives. It’s how all human rights are achieved, by recognizing them as the clear story that beings order to a disruptively changing world, recognizing how nature connects the dots, letting us frame not just “good stories” but also “true stories” about finding a sound new path.
The practicalities of recognizing “what’s really happening” so we can use our values to fashion the stories telling us what to do will mostly not need a lot of big words and shiny promises. You can do it with “big data”, even if today its main use seems to be for controlling personal data to make growing amounts of money from deny people their individuality. You can also us it to mine the data world to pick up clear signs of whole new cultures emerging you’d otherwise never be aware of, for example. Having ways of visualizing the eventfulness of change globally, on many dimensions, would be a very *different* kind of “news feed”, a true globally holistic “news feed”.
Every community could study the eventful flows of changing relationships, personal, cultural, economic, ecological, that matter to it, rather than just listen to media largely composed of chattering entertainers and politicians after money and power. If a way of mining data for signs of events could show people what’s really happening to their world, and that became the the talk of the community, everyone could participate in shaping the news and the new stories about our human rights tell us to do. It would give the media a real story to cover too. The practical job to make that possible, though, is more like science than philosophy. It’s to learn to recognize that eventful change comes from the emergence of new forms of organization, that generally begin with a viral burst of development, that energize whole systems, altering the balance and roles withing their environments, like organisms that growth from a seed to build new natural capital or flame out.
1. – Changes in Word Use – I am not an expert in semantic analysis, fundamental changes in word use, particularly if following a clear developmental pattern generally do indicate a change in the world of people and their way of speaking about it. Developmental changes in word usage expose important cultural experiences of the people writing the text. I’ve used comparisons of the Google histories of word frequencies obtained from scanned libraries of books, their “Ngram” tool. I’ve also used the histories of word use in magazines, newspapers and even Google Scholar, such as to identify
- the emergent culture of “Hip Hop” in the 80’s and it’s effect on changing the crime culture of New York City
- the history of articles on Google Scholar to find out what happened to “general systems theory”.
- the history of mentions of “sustainability” in he NY Times to track it’s emergence as a culture
Along with the various other “story mining” methods discussed in the introduction to my scientific method for mining the stories of natural change processes, and method of interpreting them:
- A new natural systems approach Interpreting BigData Exposing Earth Systems
Learning to read the eventfulness of our world – People who have some personal experience with the environments in which these explosive changes took place, as eruptions of new organization for those worlds, these documented records of the shapes of their stages of growth provide rich reminders and new challenges to imaging what was really going on to produce the new environments the created.
Today one might also use Twitter and other social media, and also collect data on product and book sales and lots of other sources. Of course, the sources would vary considerably from country to country, but the method would be the same. What’s important is for the text or numeric data being scanned for “natural coupling” be “neutral” and not influenced by the subject being explored.
What might be possible, putting it all together, is to identify natural cells of social relationships and their interests, cultural “silos” of relationships identified by their ways of using language, in real time. There are security questions whenever new kinds of information are made available, so such maps should be abstract. The most valuable feature of such a “map” of connections, though, is the ability to then see who’s NOT connecting, the isolated constituencies.
You’d see what conversations are intense in one group and missing from another, say between Twitter and the local newspaper as one possible divide., defining two communities with differing values and interests. That would be a great tool for understanding a society, and a great tool for social activist groups, letting them see how to stop “preaching to the choir”, for one example. It wold also give them insight into the words and interests of the groups they need to connect with, but hadn’t known how. Seen that way it’s a “partnership tool”, allowing people to see through the silo walls just enough to make some connections.
More examples, links, applications & … stories Continue reading ‘Big Data’ and the right to human understanding.
It helps to look at the long term trends to recognize the long term pattern.
In a world of ever increasing inequities we clearly can’t sustain a real “rights agenda”. Even the strongest of moral commitments is no match for a world economy which in a lasting physical way, is systematically splitting apart.
Sometimes local inequities can seem to be blamed on local conditions, but not when it’s a long sustained accelerating global trend. That’s what we see in this US data from 2008, showing that growing inequity in household income has been a very persistent trend. It’s a very familiar subject of discussion and increasing complaint too, that ever increasing shares of the wealth are going to the wealthy. It’s been a central motivation for the UN’s debates on how achieve sustainable development too. So the trend as of 2008, if anything, has probably only been getting worse. Little is likely to change, either, with the SDG’s having no language for reversing the pattern of the wealthy being the only winners in the modern economy.
It’s the household incomes of everyone else that stopped growing.*The estimated trend for “the 1%” is based on US and Global data
showing US & Global GDP having continued to grow as before.
To understand the root cause you need to think about it as a symptom, a symptom of how the global economic system is behaving. The key piece of information is that “What is happening, is happening for the world economy as a whole”. Around ~1970 what happened to the US economy, as the bellwether for the world, is that the wealth of the wealthy kept growing exponentially, more or less just as before. Nothing else did.
The shape of the Data explains the operation of the system
Most of my economic writing revolves around what we inherited, an economic system design for changing faster and faster, exponentially. It’s a dangerous design for which we now have no exit plan at all.
Lots of people mistakenly blame the use of fiat currency for the persistent instability and inequity of the economy. The problem isn’t technically with fiat money at all though… It’s with the deeper compulsion of users of money to use wealth and power as a weapon (we call “investing”), to pay for professional help in taking more wealth and power. It’s the core behavior in question in “the tragedy of the commons” too, that one farmer uses his cattle capital to multiply till the community suffers. Fiat money (basing credit on the value of investments) would actually not be a problem if investors didn’t compound their investments… It’s of course also a broader cultural issue of ignorance about our place in the web of life… but I think the compounding of returns is from what the economy’s growing inequity and disruptions actually originate. I think if investors took care to spend their profits to relieve their demands on the commons when needed then an economic system with fiat money would level out and stabilize.
We need a mid-course correction for the evolution of our economy
What a surprise it will be if to avoid the crises we see coming today, the economy needs a “Circular Jubilee”? It would be a massive effort to give away a great deal of money, very carefully, with the aim of slowing down the economy’s unstable acceleration. Done correctly it would relieve the rapidly building strains we all see, letting us escape from racing the economy ever faster till it fails.
It would be like learning to take our foot off the economic accelerator, to relieve strains and coast a little at the same time. We really need the relief. That really does seem necessary to relieve the economy’s building strains in a lasting way. It would restore society’s resilience and allow us to become more self-healing again too! The design is fairly simple, …to do just the opposite with financial profits as we do now. People would be persuaded to join together and turn away from collecting profits to reinvest in collecting more and more profits. It’s that very widely practiced way of managing money for ever faster growing returns that also sets the course of the economy for changing at exponential rates of acceleration. It has the globally destabilizing results we now see all around.
That traditional way of managing money we inherited is quite untenable in the long term. The one truly sustainable alternative is for investors to learn to spend their profits rather than continually reinvest them! It’s simple math. That’s the the Jubilee part, investors choosing to “release” their profits back to freely circulate in the exchange economy again. The “circular” part is that those profits then freely circulate in the economy again, and return to the investors as sustainable profits. That is the opposite of how we manage our money today.
Today the profits concentrate in the hands of investors at ever faster rates, to only circulate in the economy with promises of being repaid multiplied. It seems to investors that they are becoming more and more wealthy as their world and all its strains increase faster and faster. That’s the fatal path, pushing us toward society’s many possible breaking points. We can do better.
Compounding profits may sound good,
but driving economic change faster and faster
till we are pushed to disruptive and unstable change… is a real problem
((in the diagram, the choice is shown as the alternative between
“$Divested for Care” and “$Invested for Profit”. ))
(note: first published in 2017 but back dated to 2014, as more consistent with proposals of that time. Using collective profits to care for the commons (rather than for abusing the commons) has been the natural general solution to the tragedy of the commons first recognized by Keynes, and that I’ve proposed in various ways since I first noticed it’s simple necessity around 1979. For more of my writing on it search for my discussions of Keynes.)
- This exploration of a pivotal world issue, on which the success or grand failure of our present global development strategy rests… is an example of the wide range of penetrating treatments of important topics covered in the Research Journal “Reading Nature’s Signals“. It document’s Jessie Henshaw’s current application of the the natural systems identification and organizational exploration methods that originated with a discovery in the 1970’s of how transitions in the continuity of natural processes expose the design of the systems and how they are changing, introduced in: The Physics of Continuity = ladders of change
- For more substantiation of this scientific view of how the economy and earth are connected see:
– a Whole Systems view – Piketty’s “r > g”
– A World View of Off-Shore Energy use
- For a study of decoupling trends and fluctuation for 1971 to 2017 see
– Evidence of decoupling still zero.
We have a responsibility to use both the words of science and also the methods, when choosing methods of “Sustainable Development” to rely on for our effort to save the earth. It’s often not easy to do. Ask any scientist. It’s often as hard as sitting down to write a great poem, a different kind of creativity but just as demanding. This article discusses the correct scientific method for defining measures of “decoupling” our growing economy from its growing impacts on the earth.
That’s the part of the “Decoupling Puzzle” I can actually answer, offering a way to scientifically define an SDG for Post 2015 “economic decoupling”, and the measure of compliance. See also to the PDF file and XLS file to see the details of the model. It’s a bit different from the approach shown in the UNEP report on decoupling . What I define is an evidence based scientific measure of a growth economy departing form its reliance on growing resource use. It could be used in regulating the economy’s approach of our best understanding of the natural limits of sustainable development:
“A world Decoupling Rate that would assure, within planetary boundaries,
adequate development space and “carrying capacity” to fulfill the intent of the SDG’s.”
How to transform the economy to create growing wealth without growing resource use is left to the reader or other discussions, though I give a hint to what that “entirely new kind of wealth” might be at the end.
We start with the historic records that display the past “growth constants“ of the world economy. Figure 1. shows GDP, Energy use, CO2 and the GDP energy efficiency of the economy all growing together, with growth rates that are in constant relation to one another. That is the “coupling” of GDP and resource use that needs to be “decoupled”.
That evident constant growth rates and their proportionality (i.e. the “coupling”) is called “natural” because throughout history people have noticed it, tried to explain it, and also tried to change it, all to no avail. This coupling of these measures of the whole economy has continued as if measures of a growing person’s “height and weight”, growing at different rates, but still growing together. It has seemed to be just how the economy works.
As a systems ecologist, myself, I see them as displaying humanity’s natural rate of whole system learning, limited by coordinating all parts of human innovation and development efforts, while struggling to expand at the fastest accelerating rate possible. Systems ecology, then, does not consider economic growth as a “monetary progression” but as an “organizational progression”, a process of “whole society” building on its past to create a new future. This historical record is “how we’ve been doing it” so far, and now that we’ve found it unsustainable we need to change to something different.
…”growth” is a process of our learning how to coordinate doing what we want.
To measure a departure from that we start with the “Economic Growth Constants”:
GDP (3.13 %/yr), Energy use (1.89 %/yr), and Energy Efficiency (1.24 %/yr) . The linkage between the GDP and Energy curves, is the “Energy Coupling Rate” (60.4 %/yr the ratio 1.89/3.13), how fast energy use grows relative to wealth.
The idea and fallacy of “Decoupling”
is to weaken that linkage between earth and economy to zero, changing what has long been a constant coupling rate of 60% by successive reductions to 0.0%, just by continuing to dramatically improve the efficiency of resources use as before. Many people believe new technologies should revolutionize development to do that, other’s think innovation will create products people prefer that just don’t consume energy to produce or to use. What both would agree is that 60% needs to decline toward 0.0%
We could define that transition as a “Decoupling Rate”, the rate at which the Coupling Constant of the past declines toward ‘0.0’. That would allow continued growth in wealth without adding to what we now see are globally unsustainable scales of energy use impacts on the earth. Defined for energy use alone would serve to define it not just for the impacts of fuel extraction and consumption, but also ALL the impacts of a material kind we cause by using the energy we extract for creating economic products.
So.. that would be generally inclusive of all economic impacts
that needed energy to be produced.
Here’s the whole problem:
Scope-4 impact measures add up the total environmental inputs resulting from business, personal, or policy choices. That’s so we can compare different choices, and make the better one. Sounds like what sustainability metrics should do!
Standard sustainability metrics, however, collect impact information by where they occur,
not by what choices cause them…
So our whole metric system needs to be rethought. Today if a business decision involves employing six new machines and six new people, all that is counted are the impacts of the machines. The impacts of hiring the people or paying the investors or the government… aren’t counted. Nature sees all the kinds of impacts incurred by business decisions exactly the same way, though! It was our accounting community, going back centuries it actually seems, that decided to count one and not the other.
The omitted impacts are actually not hard to scientifically estimate for scale. That’s what Scope-4 accounting does. As you work with it you find more and more ways having the numbers right results in big changes the terms of discussion. The core scientific issue then, is having a metric that does not associate environmental impacts of business with the choices that cause them, but with the locations where the information is collected. That inconsistency may be as fundamental to economic accounting as to have originated in how business records were kept in ancient times on clay tablets.
The [ e = mc^2 ] LAW OF SUSTAINABILITY
ln(e) / ln($) = c
It says our growing earth impacts and growing earth economy are directly coupled.
The natural constant observed, [c], is the coupling of GDP and Energy use, as a measure of everything physical the economy does. It’s expressed as a ratio of their growth rates (here as a ratio of their natural logs). That coupling has been a constant [0.6] for a long time. You see it clearly in the figure below, showing a 40 year official world record for the economy’s growing Energy use and GDP.
It says that our increasing use of energy for altering the planet to make money grows only a little slower than GDP, at 0.6 times the growth rate of GDP, AND that this direct coupling has not shown any tendency to change over time! People imagine that ‘efficiency’ changes the coupling, but even with growing efficiency the ratio has actually quite constant. You’d need global efficiency in energy use to double every ~20 years like GDP generally has to really make a difference, so having growing value in a steady GDP is far more possible.
Of course, like e=mc^2, it’s not possible to tell quite where the natural constant observed comes from. That’s a big part of the scientific interest. Natural constants are emergent properties of the system, seemingly here a natural rate of societal innovation and adaptation, like a “natural learning speed”. The benefit of the constant is giving us a better way to measure inclusive sustainability, using the mathematical implication that:
— average shares of GDP pay for and are responsible for causing
average shares of GDP earth impacts —
The power of this rule the direct coupling between responsibility for shares of Earth Impacts and shares of Earth GDP. It’s a measure that combines all the impacts of extracting energy and all the impacts caused by using energy, i.e. everything the economy does, with financial earnings from the economy. When the data is aggregated correctly, it allows a complete accounting of the GDP impacts, and “closed accounting” for shares of responsibility for them. So that for whole supply chains, one can measure their share of exhausting all our resources, forest and species loss, paving over productive land, etc. Delivering goods for an average dollar of GDP causes an average share of the whole economy’s impacts.
Scope 4 CO2 assessment
The science for applying this constant natural coupling of money and GDP impacts was published in 2011 in a research paper “Systems Energy Assessment” found at the SEA resource site. More detailed research notes are in the article What’s “Scope 4″. The physics is sufficiently general and inclusive that the same technique can be comfortably use globally, to assign responsibility for all impacts of GDP on the earth, and have a way to “internalize all externalities” that can start and remain valid as it is incrementally improved, as in “A World SDG“.
The real tragedy is that this bias in our business impact metrics assigns TOTAL responsibility for environmental impacts to the people who are paid to do them, who would not do them unless they were requested and paid for by someone else.
So then ZERO responsibility is assigned to the people choosing to request and pay for the impacts, communicating their requests for them by the transfer of money.
In criminal law, as when paying to have a crime committed, requesting and paying for it is considered the principle direct cause of the crime. The person paid to do it may be penalized equally or not. As far as physically causing economic externalities, in the court of environmental responsibility, it really should be decided the same sophisticated way.
What Scope-4 accounting does, then, is start from the complete list of things a decision pays for. It could become a tremendously long list, with lots of things only known from the money spent rather than from exactly how the service was provided. So for those you need to do research on what default assumption to make in case in case more detailed information does not become available. I’m still waiting for people to study it themselves and compare results, but I think the proof is completely convincing that absent other information the necessary default assumption is not “zero” but “average”.
- If you get stuck in deciding what to count, just remember, businesses don’t pay for things except for business reasons, so you need to count *everything*.
- You then think about the different categories of spending, and what their “direct” (material) and “indirect” (economic demand) impacts are.
- The initial rough estimate rule for economic impacts is to count them at 90% of the world average per $GDP, like around 7000BTU/$.
- Make sure you use inflation adjusted $’s and state the index year.
- That’s easy to do, and lets you reserve your time for estimating the direct impacts, according to the added information you can collect.
So for the energy content of purchased fuels, for example, you’d count BOTH the direct energy content of the fuel, AND the economic energy impact of the spending, at 90% the world average. The reason is that the fuels come from nature, and the spending goes to people, paying them for the consumption they do to bring you the fuel.
If done correctly, the bottom line is a unique pie slice share of the world’s impacts
for delivering your share of GDP.
Another one to think through is how to estimate the impacts of retained earnings, used for either financial or business expansion investment. The economic impacts of that spending needs to be estimated with a multiplier over time… The whole purpose is to truthfully estimate the types and scale of consequences for our economic decisions.
More discussions can be found searching the journal or the web for “Scope-4” or “SEA-LCA” as interchangeable names for the same group of accounting methods.
_______________ Continue reading Easy Intro, “scope 4” use & interpretation
The problem that Scope 4 corrects:
Today our measures of business environmental impacts address the size and efficiency of business technology use, traceable from local business records. We’re not even trying to measure what’s traceable from what a business pays for throughout the whole economy. So in effect, the global impact is counted within a narrow local boundary, making the measures scientifically undefined, and highly misleading. Why it matters is that business, investor and policy decision makers then don’t know what impacts their decisions really have, and the research says most of any business’s real impacts are global. So we need to understand why the world economy seems to work so smoothly.
What’s counter intuitive for solving it is that the world economy not only LOOKS like a whole system, it also WORKS as a whole system. What you know is 1) all parts of the economy are supposed to be and 2) seem to act as if 3) they are competitively efficient. Otherwise 4) they lose their access to energy use, and the energy goes to someone else. Smooth working competition like that is 5) needed for a world system to work as smoothly as global data shows, and 6) making there no better assumption than that differences from global average efficiency are temporary. So unless someone can say why not, I think we have to treat energy use as being predictably proportional to GDP. That’s been peer reviewed as a general principle, that one can rely on the range of local or international variations being likely to be relatively small (maybe +/- 10%) for any globally connected part.
so…. there’s a LARGE miss-match
between the effects we see and the ones our money really causes
the scientific basis for the SEA-LCA “SCOPE 4” accounting principle,
That: Every dollar spent can be shown likely to pay for such widely distributed services throughout the world economy, that at least as a first assumption, it also pays for an equal share per dollar of the whole world’s economic activity and impacts.
In principle, shares of GDP seem to carry equal shares of responsibility for what the economy does to produce GDP
The worst part of “A Glass Half Hidden” is the clear chance of discovering “An Iceberg of Risks” missing from the view.
Scope 1, 2, & 3 only count the impacts of the primary technology chains that businesses rely on to operate, and ignore the usually much larger impacts of the many chains of business services consumed too. That’s the iceberg of hidden responsibilities of business cause, being ignored due to using an unscientific method of measurement, i.e. counting only the impacts you see, and not accounting for the one unseen (what Scope 4 finally does). So there’s also a hidden iceberg of bigger than expected changes in plan to take care of too… that we’ve been unaware of needing for having a sustainable economy. It explains why our efforts so far still result in the economy degrading of the earth ever faster as we delay making meaningful change. The job doesn’t change, just how directly we’re able to address it.
What’s really hidden is that it’s our money that is directly paying for all the economy’s impacts, making us financially responsible. Now we also really need to know the total bill. Having a habit of not looking at what our money was used to pay for, we’ve been lulled asleep by the way money launders all the information on what our money pays for to deliver what the economy provides.
(see also What’s Scope 4, and… Why all the tiers?? for examples and full analysis)
It is indeed a little ‘strange’ that a very basic scientific principle of measurement, that every scientist knows quite well already, would be overlooked in defining the world’s units of measure for saving the planet.
Scientific ways to measure things, need to measure the whole thing.
Sustainability metrics very largely don’t so that, lacking a scientific way to determine the scale of hidden impacts, the method for measuring economic impacts defaulted to the ancient practice of just counting what you have direct information on. The reality is that the great majority of business impacts actually don’t c come from what is most visible, but from widely distributed uses of the economy that businesses have no records of, paid for by employing all sorts of business services. The problem is that whether you know about them or not, the risk exposure to serious emerging economic liabilities… is exactly the same.
Here’s a new graphic to help picture the problem. It helps to shift from thinking about counting the energy “uses” a business and its suppliers operate with (i.e. traceable for Scope 1,2 or 3, and so on the visible side of the “glass half hidden”), to thinking about the energy uses its revenues are “paying for“, but often don’t have records of (Scope 4, on the hidden side). It’s the total of energy uses paid for that make a business both financially responsible and directly exposed to the emerging economic risks of physically causing economic liabilities and the harms done. It’s a serious major overlooked sustainability business risk. If 80% of the CO2 produced by uses of business revenue actually come from its services, and not its technology,
…it’s all the same to the investor exposed to the risks for the business as a whole.
For risk exposure it’s essential to measure the total impacts on the earth a business is financially responsible for, as that’s where the risk comes from. Just choosing not to count all the ones your revenue goes to pay for moves the risks to the hidden side of the “glass half-hidden”… but still leaves you just as exposed to the very substantial economic risks of business devaluation many see ahead. Continue reading How full is a “Glass Half Hidden”?