One other example where a lack of demand-side thinking drives me up the wall - the famous "100 private companies are responsible for 70% of all carbon emissions".
Apart from not being completely true (many of the companies on that list if 100 aren't private at all, about a third are owned by national governments); it misses the point completely that these companies (regardless of whether they're privatised or nationalised) aren't burning fossil fuels for shits and giggles - they're burning those fossil fuels because we, the consumers, are demanding it through our purchasing decisions.
This is a great point. I should have included it in the article! It's such a bad way of thinking because it externalizes all blame. Why should I change my behavior when "the corporations" are clearly to blame? It's amazing the negative impacts the lack of demand side thinking can have.
I don't think most people have understood that economic justice and climate change are essentially orthogonal issues.
To illustrate - climate aside it's still a good idea to break up the oil giants, for the same reasons that private monopolies are bad in general. A concentrated market is able to extract value for its shareholders at the expense of consumers and labour, and that's bad. But if your one big oil giant is broken up into 100 smaller companies each 1% the size of the original, total oil production across the sector is going to stay exactly the same, it won't have any impact on carbon emissions at all.
I agree in principle but as a former oil and gas investor I have to disagree with this specific example. The oil and gas industry is unique in that its products are completely commoditized, so there's no difference between the oil that one company produces vs. another. Because of the commoditization, oil companies are 100% price takers, not price setters, so there's no extra value that an oil monopoly is able to extract. Saudi Aramco is an oil monopoly, but they have to sell the same oil to global markets as other oil companies, so they are not able to set prices (Saudi Arabia can through OPEC, but that's a function of production, not charging a higher price on existing barrels). American companies certainly don't have the power to charge a premium.
If you were to split up the oil companies, however, total oil production would fall. Oil gets produced when it's profitable to produce it. Larger companies are more efficient, so if you replace large companies with 100 smaller companies, each of them individually will be less efficient and will be able to produce less oil as a result. The marginal wells won't get drilled by less efficient companies. Of course, less oil will mean higher prices, which will hurt consumers, so there are economic reasons to not break up the oil companies.
Great piece, but I do wonder if the ‘Supply’ element is underplayed - particularly in the present context, when social media companies use algorithms to essentially appeal to the baser instincts of human nature and ensconce us in our comfortable information bubbles.
In that sense, are media and social media not helping to create the demand (ala a drug dealer getting addicts hooked)? Ditto with politicians/elites, most of whom have given up on persuasion for base turnout at election time (and whose actions also shape media coverage)?
Nonetheless, I fully agree that the demand element is under appreciated. Human beings love drama and modern politics is one place we can get it by the bucketload.
It's a good point. I wanted the article, at the risk of oversimplification, to make it clear that demand is the primary driver. I agree the supply can have some impact too, but it's certainly less than the demand. Most public discourse assumes the products in these marketplaces are virtually 100% driven by supply, instead of the 70/30 or 80/20 demand/supply split that I think is much more accurate.
I think the drug dealer analogy is a good one and the "baser instincts" you mention can be summed up as negativity bias and tribalism, which I'll focus on in my next article.
These biases function as addictions, but the question is do they function more like our addiction to hard drugs or like our more mild addictions to things like sugar and caffeine? My hunch is the latter, and if that's the case, nobody blames Coca-Cola and Starbucks for the products they make. People like their products, but some people like them too much. When people like them too much, the solution is to regulate that particular customer's appetite and intake, not to drastically reform the companies themselves. I think that's the key here too. Recognizing that our addiction to negativity is real and that we need to actively regulate it is the key to the problem.
If it turns out our addiction to negativity is more like an addiction to hard drugs like you mentioned, then perhaps we'll also need intensive medical and addiction recovery interventions. Either way, large scale demand-side interventions are definitely needed, so recognizing that the demand is the problem is the first step to getting to real solutions.
One other example where a lack of demand-side thinking drives me up the wall - the famous "100 private companies are responsible for 70% of all carbon emissions".
Apart from not being completely true (many of the companies on that list if 100 aren't private at all, about a third are owned by national governments); it misses the point completely that these companies (regardless of whether they're privatised or nationalised) aren't burning fossil fuels for shits and giggles - they're burning those fossil fuels because we, the consumers, are demanding it through our purchasing decisions.
This is a great point. I should have included it in the article! It's such a bad way of thinking because it externalizes all blame. Why should I change my behavior when "the corporations" are clearly to blame? It's amazing the negative impacts the lack of demand side thinking can have.
I don't think most people have understood that economic justice and climate change are essentially orthogonal issues.
To illustrate - climate aside it's still a good idea to break up the oil giants, for the same reasons that private monopolies are bad in general. A concentrated market is able to extract value for its shareholders at the expense of consumers and labour, and that's bad. But if your one big oil giant is broken up into 100 smaller companies each 1% the size of the original, total oil production across the sector is going to stay exactly the same, it won't have any impact on carbon emissions at all.
I agree in principle but as a former oil and gas investor I have to disagree with this specific example. The oil and gas industry is unique in that its products are completely commoditized, so there's no difference between the oil that one company produces vs. another. Because of the commoditization, oil companies are 100% price takers, not price setters, so there's no extra value that an oil monopoly is able to extract. Saudi Aramco is an oil monopoly, but they have to sell the same oil to global markets as other oil companies, so they are not able to set prices (Saudi Arabia can through OPEC, but that's a function of production, not charging a higher price on existing barrels). American companies certainly don't have the power to charge a premium.
If you were to split up the oil companies, however, total oil production would fall. Oil gets produced when it's profitable to produce it. Larger companies are more efficient, so if you replace large companies with 100 smaller companies, each of them individually will be less efficient and will be able to produce less oil as a result. The marginal wells won't get drilled by less efficient companies. Of course, less oil will mean higher prices, which will hurt consumers, so there are economic reasons to not break up the oil companies.
Great piece, but I do wonder if the ‘Supply’ element is underplayed - particularly in the present context, when social media companies use algorithms to essentially appeal to the baser instincts of human nature and ensconce us in our comfortable information bubbles.
In that sense, are media and social media not helping to create the demand (ala a drug dealer getting addicts hooked)? Ditto with politicians/elites, most of whom have given up on persuasion for base turnout at election time (and whose actions also shape media coverage)?
Nonetheless, I fully agree that the demand element is under appreciated. Human beings love drama and modern politics is one place we can get it by the bucketload.
It's a good point. I wanted the article, at the risk of oversimplification, to make it clear that demand is the primary driver. I agree the supply can have some impact too, but it's certainly less than the demand. Most public discourse assumes the products in these marketplaces are virtually 100% driven by supply, instead of the 70/30 or 80/20 demand/supply split that I think is much more accurate.
I think the drug dealer analogy is a good one and the "baser instincts" you mention can be summed up as negativity bias and tribalism, which I'll focus on in my next article.
These biases function as addictions, but the question is do they function more like our addiction to hard drugs or like our more mild addictions to things like sugar and caffeine? My hunch is the latter, and if that's the case, nobody blames Coca-Cola and Starbucks for the products they make. People like their products, but some people like them too much. When people like them too much, the solution is to regulate that particular customer's appetite and intake, not to drastically reform the companies themselves. I think that's the key here too. Recognizing that our addiction to negativity is real and that we need to actively regulate it is the key to the problem.
If it turns out our addiction to negativity is more like an addiction to hard drugs like you mentioned, then perhaps we'll also need intensive medical and addiction recovery interventions. Either way, large scale demand-side interventions are definitely needed, so recognizing that the demand is the problem is the first step to getting to real solutions.