Reply to Amory Lovins

Dear Dr. Lovins,

Thank you for your thoughtful reply to my earlier message. I very much appreciate your spirit of dialogue and willingness to share your insights and criticisms. I would be delighted for you to post this exchange at RMI and I will do likewise at Ecological Headstand. I want to reiterate at the outset that it seems to me we are in agreement on the substantive issues, it is mainly in matters of interpretation of the relative significance and implications of them -- and where to go from there -- that we may differ.

Specifically, I agree that there is no evidence in the literature that energy improvements are "largely, wholly, or more than wholly [...] offset by extra economic activity caused by energy efficiency." I also agree that the metrics of economic growth are controversial. You cite the "Gross World Product" as being meaningless; I would extend the critique to country-level GDP. Finally, you refer to the serious problems of measurement that would arise in any attempt to isolate the interactions between energy consumption and employment, which in my view is indeed a daunting challenge. I will take the liberty of reviewing those points of common ground in reverse order to highlight apparent divergence in our respective interpretations.

First, with regard to the difficulty of isolating the interactions of energy consumption and employment, I would note that much the same difficulties pertain to the traditional question of the interaction between labor-saving technology and employment. That hasn't stopped mainstream economists from making unconditional pronouncements about the supposedly "unlimited" demand for labor. Such claims are backed by econometric studies that purport to show that the demand for labor is not "fixed" and therefore (by inference) may be assumed to be unlimited. There has been a rash of such studies over the past decade connected with the drive to "reform" public pension entitlement by raising the entitlement age. (See for example, Gruber and Wise (2010) Social Security Programs and Retirement around the World: The Relationship to Youth Employment.) What this suggests to me is that the "serious problems of measurement," while real are routinely discounted by economists operating in a conceptual silo where the question of energy consumption is excluded by ceteris paribus assumptions. I wouldn't want striving for perfection to be the enemy of improvement.

Second, with regard to the controversial metrics of economic growth, I would like to call your attention particularly to critiques of national income accounts by Roefie Hueting and Stefano Bartolini. Hueting has argued that "asymmetric entering" distorts the calculation of national income accounts -- that is to say there are no negative entries in national accounts for environmental damage or resource depletion but there are positive entries for environmental remediation. Hueting's critique specifically references Simon Kuznets's original critique of the Commerce Department's National Income and Product Accounts for including in the total amounts that should be discounted as intermediate goods. Bartolini presented the similar concept of "negative externalities growth", that is to say economic growth that is driven by the need to respond to negative externalities. Bartolini defined two types of negative externalities: positional externalities, related to the "rat race" of everyone seeking to improve their relative position, and the replacement of formerly free goods with commodities. The critical literature on national income accounts spans the history of those accounts from Kuznets's 1947 critique to the 2009 report of the Commission on the Measurement of Economic Performance and Social Progress (Stiglitz, Sen and Fitoussi). My point is that citing relative and absolute gains in "energy intensity of GDP" is no less fraught with "serious problems of measurement" than is the index I proposed of "energy intensity of employment."

Finally, with regard to the absence of evidence for the "hard core" version of the Jevons Paradox, I would cite the maxim that "absence of evidence is not evidence of absence." Aside from any demonstration of strict causality, we are still confronted with an association that has prevailed in 26 of the last 35 years, using your own figures. Furthermore, the expectation that efficiency gains would correlate with consumption increases in any given year, makes the questionable assumption that for a rebound effect to exist, it must be virtually immediate, with measured effects occurring in the same calendar year. What about the possibility of incremental efficiency gains whose effect on total consumption is a cumulative "external economy" that is only realized in the "long period"?

Alfred Marshall addressed the differences between short-period analysis -- where ceteris paribus assumptions and mechanical analogies are appropriate -- and long-period analysis -- where they are not -- in his 1898 essay, "Distribution and Exchange." I would like to cite a brief passage from that essay:

In the relatively short period problem no great violence is needed for the assumption that the forces not specially under consideration may be taken for the time to be inactive. But violence is required for keeping broad forces in the pound of Ceteris Paribus during, say, a whole generation, on the ground that they have only an indirect bearing on the question in hand. For even indirect influences may produce great effects in the course of a generation, if they happen to act cumulatively; and it is not safe to ignore them even provisionally in a practical problem without special study.Thus the uses of the statical method in problems relating to very long periods are dangerous; care and forethought and self restraint are needed at every step.

But the difficulties' and risks of the task reach their highest point in connection with industries which conform to the law of Increasing Return; and it is just in connection with those industries that the most alluring applications of the method are to be found. Long period supply curves in relation to such industries are fascinatingly clear and vivid: but they are made too clear and vivid to be at all near to reality.

As Jonathan Koomey has pointed out, increasing returns to scale play an important role in the energy industry. If I may back up a bit here, though, I want to reiterate that I am not a partisan of the Jevons Paradox. As I stated in my first email to you, the Jevons Paradox is based on an analogy with an argument I consider to be a "hasty generalization" and a "post hoc fallacy." I personally would prefer a much more complex analysis that looks at the interaction of the evolving and contingent constraints on "prosperity" imposed by credit, human agency and natural resources.

In a nutshell, my position is that the driving force of resource consumption is credit expansion and that finite resources impose a constraint on that expansion. The efficiency gains therefore don't literally "cause" increased consumption but they do relax a constraint, thereby potentially enabling increased consumption absent some other constraint. Unless there is a change in the defining economic logic of credit and growth, the end result is the same for most intents and purposes. In short, I don't think it's a question of Jevons vs, not-Jevons but of how to move beyond such an unfruitful dichotomy. I welcome any further thoughts you have on these matters and will be happy to share the results of my ongoing inquiry into the apparently unexamined question of the energy intensity of employment.

Yours sincerely,

Tom Walker