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The Nature of The Jevons Paradox
by Tadit Anderson
Email: ideasinc (nospam) ee.net
08 Jan 2007
The Jevons Paradox is an intersection of several different threads of issues, peak oil, global, warming, economics, and the nature of science
by Tadit Anderson ideasinc (at) ee.net
“The Jevons Paradox” should be important to the advocates for a era of post peaking of natural and oil production. Foremost is that The Jevons Paradox identifies a pattern of economic behavior that is asserted as support to arguments against favoring energy efficiency in the use of fossil fuels. Thereby it also is used against proposals to reduce and reverse contributions of carbon dioxide to the global warming process. The conventional economic wisdom associated with The Jevons Paradox declares that efficiency strategies produce contradictory results and asserts that market based “solutions” will always be the best solutions. This use of neo-classical economics and its heirs adds additional obstacles by also being reductive by taking environmental, geological, and engineering problems and recasting them into the terms of conventional economic wisdom. Conventional economic wisdom has the strategic advantages of being both counter intuitive and financially well supported. A third advantage of conventional economic wisdom is that most of its critics are by choice ill prepared to evaluate and respond either with. Examining The Jevons Paradox should lead at least to the conclusion that economics as a field of interest should not be abandoned to the current practitioners of predatory economism. Along the way there will be reasons enough to question the nature of anti-inductive approach to social science and the too often faith based nature of the cultural critiques favoring societal change.
A further reason to examine the use of free market economics is that our economic systems are largely centralized and sustained by fossil fuels. Understanding The Jevons Paradox is thereby pivotal to the restructuring of our economic practices toward relocalization. Given that the majority of the remaining reserves of oil and natural gas are outside of the United States, this examination will reveal the motivations and objectives of what is applied as the basis of much of neo-colonial foreign policy. In summary, examining The Jevons Paradox leads us straight into our current tangle of societal and cultural problems. It is effectively a cusp point of several important threads.
Jevons by Jevons
William Stanley Jevons (1835-1882) was a British economist who is noted as one of the pioneers of neoclassical economic analysis. Jevons is credited with three contributions to the history of economic ideas. The adjective "neo-classical economics" references Adam Smith, David Ricardo, and others of the 18th century as the classical "free market" economists. The current nominal "neo-liberal" economists which are dominant among mainstream academic economists and conventional policy advocates are the current heirs to the "free market" legacy. One of Jevons's contributions was his declaration that subjective value theory is rooted in the concept of marginal utility. For Jevons, the utility or value to a consumer of an additional unit of a product is inversely related to the number of units of that product they already own, at least beyond some critical quantity. To translate this into more common terms, each additional widget or unit of something will have less value for a consumer when it is collected in a pile of like widgets and units. His second contribution is noted as having recognized the applicability of mathematics to economics. He isacknowledged as a precursor to "modern" mathematical economics by his publication of General Mathematical Theory of Political Economy in 1862. In this book he outlined his marginal utility theory of value as well as asserting the mathematical nature of economics.
Jevons's third book was The Coal Question published in 1865 and first brought him wider public recognition. In this book he observed that the consumption of coal as a fuel did not follow the marginal utility theory of value. He declared that the increased efficiency in the production of a natural resource such as coal resulted in the increased demand for coal not a reduction in its use. Based upon this he declared that that Great Britain would in time deplete its coal resources. On this point Jevons is seen as a predecessor to the analysts who today predict the peaking of the production and distribution of oil and natural gas. Jevons defined a causal linkage from the improvement of the steam engine by James Watt, to its use to increase the efficiency of coal mining, to the reduction of the cost of mining coal, to the rapid increase in the market for coal, to the eventual depletion of Great Britain's coal reserves. Thereby Jevon declared that "It is wholly a confusion of ideas." This is Jevons third contribution to the history of economic ideas and what is commonly described as “The Jevons Paradox.”
The Jevons Paradox actually has two parts. First, to Jevons the effects of efficiency technologies, as they effected economic behavior related the early 19th century English coal industry, seemed contrary to his understanding of the marginal utility theory of value. His expectation was that each additional unit would have less value. Instead it seemed that the value of a unit of coal increased increased even if the price of that unit went down. A less simplistic interpretation would have identified coal as a commodity having strategic utility in the powering of an economy and for providing ongoing comfort. Jevon's second observation is that by the accelerating use of coal as a energy resource it would be depleted sooner. The resulting 'positive' effect is declared to be the increase in immediate profits as well as the production of new capital toward producing new products, which is a form of “trickle down” economic rationalization.
Support, Corollaries, and Presumptions
There are several contemporary examples that are applied as evidence in support of The Jevons Paradox. One is a result of the oil embargo by OPEC in October 1973 against countries that were supporting Israel's Yom Kippur War against Syria and Egypt. Even though OPEC was a marginal supplier, its embargo resulted in the cost of gasoline increasing throughout the world by real and apparent shortages. Suddenly large gas guzzling cars were avoided in favor of more energy-efficient vehicles. This conservation strategy was soon followed by a gradual increase in the demand for fuel because driving increased and the number of cars on the road soon doubled. Similarly, technological improvements in refrigeration have led to more and larger refrigerators. The same tendencies are in effect within industry, independent of household consumption. The same pattern has been reflected in the past 15 or so years in the rising popularity of the super sized "McMansion" housing developments, where energy efficiency technologies have been used to control the operating costs of houses so that the square footage of the houses can be significantly increased. All are also examples of the escalation of the expectations of consumption. The conventional interpretation is that efficiency technologies often result in the expansion of consumption patterns by individuals rather than actually conserving energy. Thereby the advocates of “free market” economics argue against policies favoring efficiency and conservation.
The examples confirming The Jevons Paradox alongside the speculations of new energy technologies are frequently used to “prove” the futility of advocating increased efficiencies or of the reduction of fuel consumption. So, by applying this reasoning to energy efficiency as related to oil and natural gas use, we are told that we will actually stimulate the growth of oil and natural gas consumption and accelerate their depletion rates. Part of this economic prediction is based upon the assumption of an elasticity of demand, that there is an often latent demand that is revealed upon the drop in the cost of energy or of other commodities.
Under present conventional economcs The Jevons Paradox is only seen as a paradox relative to Jevons's own expectations. The offered amendment to the theory of marginal utility is that a change in the efficiency or expense of obtaining a product may cause changes in the price of that commodity to the consumer. This basic approach also defines the fuel used to produce a product to be a marginal cost of that production. The issue of depletion of a resource, including fossil fuels, has been rated by conventional economists as a non-issue. One underlying assumption is that when a particular resource is depleted or becomes too expensive to use, then with the proper capital incentives a substitution will be found, with the intervention of capital and the magic of the “invisible hand.” This is the “free market” replacement assumption. By extension, when a fossil fuel is depleted or becomes too expensive, then by providing subsidies and other incentives a new energy source will be created to replace the prior primary energy source. By the nature of the substitution process, fuels, even high energy fossil fuels, are regarded as no different that any other economic commodity.
This capital based replacement assumption involves a simultaneous faith in the supernatural nature of the invisible hand of the “free market” alongside presentations featuring allusions to “scientific logic.” By this presumed omnipotence a natural science and engineering problem is reduced to a variable within conventional economic analysis and thereby policy making without considering the scientific and engineering obstacles involved. This extension is also the assumption of technology as savior, and effectively ignores the real problems of real natural science, making conventional economics seem rather “un-natural.” Ethanol, bio-diesel fuels, and nuclear energy are the current examples. All along the way little attention is given to the actual effects of the centralized and corporatized macro economic systems, their vulnerabilities, and the collateral effects that these priorities and structures sustain. By the shear concentrated dependency upon an unusually energy rich fossil fuel the lack of diversity alone describes the incapacity to adapt to change.
Bio-sourced ethanol seems to be the running favorite replacement fuel, which qualifies for only a very limited definition of a “clean” fuel. This application of the replacement assumption seems to indicate that although conventional economists often boast of great facility with the use of mathematical models, they also seem to have a few problems with arithmetic. The first is the net energy yield of production of ethanol both requires the use of a fuel itself and the net gain of the return of energy used as compared to the energy content produced is only weakly positive. The second problem is that the total amount of available arable land is substantially less than the amount of land that would be needed to grow both food for our population and crops for ethanol production for our economies and transportation. Even so, politicians are also advocating that the public has an obligation to make these speculative investments in ethanol processing plants “successful.” This in turn implies that additional subsidies will be required from the public to make those investments profitable. The collateral damage of starvation and global warming are not even admitted entry into the actual calculations being indulged. Alternative fuels which have levels of energy returned for the related energy invested roughly equivalent to oil and natural gas still remain to be discovered. The primary attraction of the proposed replacement fuels seems to be that by prioritizing the maintenance of a particular economic order. The expectation is then that the supporting societal structures and values won't be required to change. As an alternative energy source, conservation and energy efficiency has been largely been considered only as it serves the expansion of consumption, profits, and as an affirmation of The Jevons Paradox.
Counter Examples and Economic Illogic
There are at least two easy counter examples to The Jevons Paradox. The first is the mass transit in the US as it historically existed prior to its dismantling by the US auto related industry. The efficient use of energy was by design reduced to increase both consumption and corporate profits. This advocacy of a New American Dream was accompanied by a massive public relations campaign which inflated racism and elitism. The second example is mass transit as it currently exists in Europe. It is difficult to not identify mass transit as an energy efficiency technology. In the presence of effective regulatory institutions or alternatives, and of the treatment of fuel as a strategic economic utility The Jevons Paradox does not seem to have any basis. The anomalous behaviors as described by The Jevons Paradox are produced by additional institutional factors, including governance, economic, and societal. The Jevons Paradox is simply a product of a particular set of economic ideas and assumptions.
In effect economic security and political institutions have been reverse engineered to serve corporate wealth. As an example, related industries have acted to oppose the increasing of the standards of residential insulation for new residential construction in order to preserve their profits. Efficiency in production caused by inefficiency in the use of resources The obstruction of mass transit in the US has been used to expand profits more than serving the interests of the population. Energy efficiency strategies applicable to industry, transportation, and buildings have been available for a long time, at least decades, and with certain exceptions have attracted only limited attention.
The concentrated control of strategic economic sectors has not only enjoyed unregulated profits it has also generally not contributed a proportionate to support of commons infrastructure and has also constrained the choices of other industrial sectors. The assumption of economies of scale is based upon having access to high energy fuels by which the distribution of goods over a wider consumption base can be supported. Without this variety of high energy content fuels this centralization would not be possible. In these terms as the real net energy cost of distribution increases, then centralization should be reversed toward greater localization. The points here are that we can ill afford to dismiss the importance of community economics or the details of what it is intended in the advocacy for the relocalization of communities. We also need to recognize that attempting to maintain the current implicit priorities will cause great harm to our communities. If the analysts and advocates who recognize the likely effects of the peaking of the production and distribution of oil and natural gas concentrate primarily upon technological energy efficiency we are likely to leave in place the incumbent economic and societal conventions.
If there are any paradoxes at all embodied in The Jevons Paradox, then the contradictions can be found among the assumptions of “free market” economics and as it is applied to real time societal needs and priorities. One contradiction is the assumption that the thinly “naturalistic science” perspective is at all adequate to model social phenomena. Another is the assumption that economic growth will not be limited by the availability of natural resources both strategic and general. Another contradiction is the assumption that energy sources such as natural gas and petroleum are replaceable as strategic economic commodities. Another is that the unregulated distribution of surplus value as the invisible hand theology promotes is in the best interest of the general population. Also, to reject the domain of economics carte blanc and its contribution to solutions, also tacitly accepts the current mainstream assumptions as the default paradigm.
By definition a scientific theory has to be adequate to the field of phenomena that it is established to predict. If this is not the case, then what is proposed is more on the order of an ideology than a scientific theory. To rephrase, statements of theory must adapt to the reality of the behavior it proposes to predict. Conforming real behavior into supposed theories for the sake of a standard of falsifiability, seems simply backwards. Paradoxes arise only when a field of phenomena does not conform to a proposed theory and its assumptions, both explicit and tacit. The problem identified by a 'paradox' lies in the applied explanatory theories and ideologies. When organizations and communities hit an economic crisis, real or imagined, without a useful alternative economic analysis the default choice will remain the conventional economic wisdom and the posturing of fiscal conservatism reigns in place of insight.
The Inelasticities of Demand
It is not really a surprise or a paradox that under a higher priority for the conservation of energy or under a marked increase in the efficiency in producing any product that a new population of people might be able to afford to live in the manner that they have been aspiring to for decades if not longer. This is a product of class structure, advancing standards of consumption, direct usury, and complicit usury. It is not the result of a “black box” mystery unless these aspects of economic life are ignored. The default model of production is structured to maximize wealth extraction and then consumption as it serves the wealth extraction process. It is pretty much a fact that low income people are strongly interested in sharing the middle class standard of consumption. That former colonies should also be expected to have as a goal some level of economic self sufficiency and parity of consumption is also not a surprise. What is also rarely admitted is that the aspirations represented by the concept of the elasticity of demand might be realized by alternative strategies as well. That human cultures have the capacity to adapt though often unwillingly, unpracticed, and supported by short attention spans. The implications of the fact that the reserves of fossil fuels are declining and of the very likely economic implosions does not seem to be even on the general cultural radar. While this pattern demonstrates typical forms of the elasticity of demand relative to certain products, it does not address the often assumed nature of that demand.
That the effects of the depletion of fossil fuels, global warming, and systemic economic collapse will be primarily economic in nature is certain. That low income people will be hit first, foremost, and hardest by these economic effects is also certain. The increasing economic calamities are likely to be experienced as simply an increase in the already existing social inequities and hardships. Occasionally individual experience of being reduced within the commons to wide spread tragedy. Scarcities will create demand for products which were once easily available. The priorities evident in the impact and long lasting effects of hurricanes Katrina and Rita, both in the deliberate lack of prevention and in the failure to respond in a humane and unprejudiced manner afterwards, should remain emblematic. The devastation caused to southern Louisiana and east Texas, and the indifferent response to this damage to low income communities has been taken as a clear message to all low income people of what the priority of their needs represents with the incumbent process of governance. Additionally, given the current and accelerating extraction of wealth from our communities and natural resources, the population that has been defined as low income and working poor is growing rapidly primarily by the addition of formerly middle class families losing their positions in the class order.
Historically when a middle class has lost its identifying assets and opportunities for mobility they tend to be intent upon restoring those assets and opportunities, particularly when more constructive choices are not made available. In effect they tend to choose inelasticity of their demands over elasticity and alternatives. When technologies remain the same and do not increase their efficiency significantly, but the economic and cultural patterns are shifted toward reduced consumption, people will attempt to restore their levels of consumption by whatever plausible means. In this context there is also an incentive for the stewards of corporatized economies to promote various schemes to divide including racial scapegoating and imperial forays. This also is a reversal of The Jevons Paradox, that is the increase in consumption by avoiding more energy efficient technologies for the sake of the centralization of profit and authority. This reversal further validates the importance of the changing of the societal and cultural patterns.
Cuba's experience with the sudden cutback in the availability of oil in the 1990's was met with numerous challenges, innovations and accommodations, which has allowed it as a nation to successfully adapt. The primary structure of interest should therefore be societal structures and values contributing to the elastic nature of demand to increase and to the inelastic resistance to decreasing demand. Current declarations from the US that Cuba should “modernize” its economy is really about re-establishing the structures of wealth extraction there against the interests of the Cuban communities. The point here is that cultures and societal structures can adapt to extreme stress, thereby nullifying The Jevons Paradox and the capital based replacement assumption.
Another Economics Is Possible
Cultural and institutional change is usually the last item on most change agendas. In part societal and institutional order is often operationalized as a basis for power and an avoidance of change. It is understandable because it is often a more difficult process, particularly when diverse organizational forms and choices do not co-exist. The first choice is usually to change the occupancy of the dominant structures of authority rather than changing those institutions. Parallel to this is that there are developing countries who have an interest in developing their own economic self sufficiency, apart from being strongly controlled from international banking centers. Often that process seems by default to result in building those economies based upon a reliance upon oil and natural gas as the convention. For all of its real limitations the uniquely high energy concentration of natural gas and oil as fossil fuels will make them attractive as choices when the cost is low relative to the energy value embodied. Fossil fuel nationalism will thereby become an increasing factor in the international struggle for the control of strategic resources. As the consumption of the remaining oil and natural gas reserves accelerates, sustainability will depend upon energy diversification and the restructuring of economic priorities.
Dismissing economics has been a major part of the response to the pending collapse of unregulated, speculative, and centralized economics and to its contributions to both the peaking of oil and natural gas production and of the geo-climatic effects of their combustion. The primary attraction for this dismissal seems to be reactionary, and that it erases any responsibility to develop an actual alternative economic analysis and and a related practical agenda. Similarly the repetition of the word “community,” lacking specification and in its various forms, has been used as a basis for pressing for conformity of a different nature. This repetition is used as a substitution for a more intentional analysis of our economic priorities and societal patterns by those who advocate strongly for alternative technologies. The social justice, environmental, and anti-war contingents seem to take a similarly critical, uninformed, and unconstructive position. It is in effect also a faith based approach of a political philosophy with equal failings.
While the criticism of faith based economics is appropriate, the abandonment of economics as a field of knowledge is not. The prejudice against economics in total is dangerous because lacking an alternative analysis it leaves in place the incumbent paradigm. The institutionalization of usury routinely exploits both societal and public relationships, including the commons, and personal relationships. Social reality is complexity piled upon complexity. If faith is to be admitted anywhere in this process as as other than blind, it needs to be by continual adaptation and the use of open imagination, problems can be solved and alternatives can be proposed. The result of the conveniences of academic domains has been to introduce more confusion into the project of societal change than to support it. It has been the centralized and privatized economic paradigm which has afflicted many problems. The accelerating depletion of fossil resources and natural resources generally has been driven by this same system of political economics.
Not only is another world possible, but also another way of doing economics is possible. The goal here is not to turn peak oil technophiles into economists or turn democratic socialists into engineers. The goal is to develop a broad re-interpretation of our societal, economic, and environmental possibilities. Living in community is a lot more complicated than repeating the word “community.” If we can't work and discourse in community with people with interests in other knowledge areas, then the whole project of societal change is not going to advance. There is plenty of work for each set of willing hands, and the adequate solution is likely to be a bit beyond the expertise and capacity of any would be celebrity. It is also a matter of simple respect that those versed in specific areas try to curb their grandiose statements from those areas where they lack an appropriate knowledge base. The Jevons Paradox as it is used to resist institutional change is essentially part of a complex fraud. Conventional economic wisdom is more about the manipulation of symbols and promoting economic mythologies, than it is about democratizing our economic communities.
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