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What are alternatives to the dollar?

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In many of the discussions regarding sovereign money, and in the case of MMT in particular, it is not clear whether the points made are hypothetical, or descriptions of current reality, or proposals for an improved monetary system. You’ve talked about the possibility of the dollar no longer being accepted as a “liability” in the US. Under what actual conditions would that occur and what would be the alternative to dollars as currency if this situation should arise?

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Posted by Paul Spring
Posted on 12/30/2016 8:21 AM
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The Euro or the Yuan are the natural competitors. It’s all about size and dependability. Are they realistic alternatives? Probably not. After all, the value of the US dollar is largely a function of the fact that US corporations kick a lot of ass. All that ass kicking gives US output a lot of credibility which makes the US dollar in high demand. So it’s the natural reserve currency by virtue of being attached to such a productive revenue source. Will this change? I guess at some point. But probably not until Trump nukes someone. :-)

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Cullen Roche Posted by Cullen Roche
Answered on 12/30/2016 6:15 PM
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    Thanks for the response, Cullen. MMT claims that the tax “liability” makes the dollar viable. I just can’t see this as being true any longer – especially in light of your answer above – there is no alternative that people would flock to should taxes end.. So it seems that the dollar is not really a liability at all since the government owes nothing in return for receiving dollars. So why even use this terminology to describe the present state of money? It confuses the heck out of me. Is there anything invalid about my premise?

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    Posted by Paul Spring
    Answered on 12/30/2016 7:27 PM
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      The MMT view is confused in my opinion. I first talked to Warren Mosler about it 5 years ago and he said it basically comes down to men with guns imposing a tax. That creates demand for the money because it’s involuntary. This makes sense at first except for the fact that taxes are just a fee charged on output. So output necessarily precedes taxes. In other words, you need productive output for taxes to even work. And many cases of hyperinflation result in a lack of demand for the currency because the output denominated in that currency becomes unproductive.

      So, the MMT view is incomplete at best and probably focuses too much on the govt.

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      Cullen Roche Posted by Cullen Roche
      Answered on 12/30/2016 8:03 PM
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        MMT is to statism what MR is to free markets.

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        Posted by MachineGhost
        Answered on 12/30/2016 11:11 PM
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          Yes, I find MMT to be somewhat circular and mainly a vehicle that has managed to popularize the concept of sovereign money – not to be dismissed.
          I just finished reading your article on “Understanding the Modern Monetary System” – very well written. You managed to keep the level of sophistication fairly constant without devolving into too much lingo
          I know you were attempting to describe the system as it is, It appears to be so hopelessly flawed and to run counter to what society needs to thrive. You did make some remarks with respect to the dubious wisdom of private banks in allocating internal money, but overall you seem to feel that a little tweaking and regulation should do the trick. I am very skeptical. Do you ever consider alternatives to “free markets”, which, from what I’ve read, is a fantasy.
          What is “statist” about MMT? It is my understanding that their conclusion is that the current banking system is just fine. Other than the Minsky employer of last resort, I don’t see any particular starring role for the state in MMT – what am I missing?
          Thanks for the very informative articles.

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          Posted by Paul Spring
          Answered on 12/31/2016 12:20 AM
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            It appears there with a central role as central bank deposits are eroneously identified as the nations money when it is in fact commercial bank deposits that have that role.

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            Posted by Dinero
            Answered on 12/31/2016 8:38 AM
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              Seems to be a matter of emphasis and semantics. MMT does claim that banks create money. I don’t think Mosler’s comment to Cullen conflicts with what Cullen presents in his articles. The gov’t spends that into the economy only constrained by artificial congress-imposed limits. The money cycle process can be examined at any point in that cycle – bank money creation or ultimate government spending of that bank created money. Does it really matter? The real point that is lost in all these discussions is that the existing system is not geared toward optimizing the public good regardless of which part of the cycle you choose as the starting point.

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              Posted by Paul Spring
              Answered on 12/31/2016 10:40 AM
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                MMT is additionally prescriptive, not just descriptive like MR. So the difference is MMT is like MR with a layer of socialism and Keynesianism overlayed, i.e. “full employment” and all the other statist malarky that comes from having an ideological viewpoint that only government creates all forms of money used by society.

                Congress does not ultimately constrain government spending; the free market does via Confidence and Bond Vigilantes (extreme example: how well is constraining government spending doing for Venezuela currently?). MMT likes to ignore the role of free minds and free markets, probably for the same reason liberals and Progressives do (just look at them still whining about Trump winning while missing the Big Picture of the sweeping global political movement going on right under their stuckup noses.).

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                Posted by MachineGhost
                Answered on 12/31/2016 1:50 PM
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                  > Paul Spring

                  You have got to be kidding , it presents itself as what follows from the conclusion of its erounoss description as the monetary system , as that description is wrong , you cannot conclude that anything follows from that description.

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                  Posted by Dinero
                  Answered on 12/31/2016 5:48 PM
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                    MMT is statist to the extent that they construct their model of the economy via a government centric lens. In MMT the govt controls the quantity of net financial assets. The govt is the cause of unemployment. The govt creates the demand for the currency. All of this might be true to some degree, but MMT overreaches in many areas because their policy initiatives are the ultimate motive of the theory and in order to make the policy ideas appear feasible you have to first convince people that the govt has constructed a system that it alone can fix.

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                    Cullen Roche Posted by Cullen Roche
                    Answered on 12/31/2016 6:28 PM
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                      Yes, I agree there is an emphasis on the Fed/Tsy relationship, but it was my impression that this was to expose and root out common entrenched misconceptions about the power of the fed. I don’t see fundamental differences between the MR view and MMT. MR may be descriptive but it begs the question, what does one do with that knowledge? On the other hand, other than employer of last resort, I find MMT pretty much devoid of policy.

                      Clearly you feel government is not the answer. I, on the other hand, believe the jury has finally given its verdict on capitalism in terms of it providing a net long term benefit to society – after its 200-year run it has clearly failed. For instance, It can not address climate change – it is inherently deaf to the signals of a threat that is not driven by individual aspirations. Do you see a non-governmental solution?

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                      Posted by Paul Spring
                      Answered on 12/31/2016 7:40 PM
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                        I think govt has an important role to play at times. I am a true Keynesian in the sense that I believe a govt should be countercyclical in its role in the economy. When the economy operates below capacity it should try to stimulate demand and when the economy operates above capacity it should ease off. This is just my personal view though. The economy is like a car and cars perform differently in different environments. MR is just a description of how the car works. Applying that knowledge to certain environments is like driving the car whereas MMT and most other theories usually say that you should always drive that car one way in all environments. I just don’t think it’s that simple.

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                        Cullen Roche Posted by Cullen Roche
                        Answered on 12/31/2016 7:51 PM
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                          @Paul Capitalism COULD address climate change IF enough people believed it was a problem and acted. Indeed, a majority of Big Business has taken up the mantle (if not greenwashing) due to the grass-roots movement. Which is likely the second major grass roots victory after the apartheid movement. So what is the real problem then? Well, it seems to me the only ones that have a problem with the soft approach are top-down statists who want to impose their utopian values upon everyone else by relying upon violence instead of reason. Statists don’t really care about the unintended consequences of what they demand because their goal isn’t to save humanity or insert reason here, but political power over others. They literally get off on it. They are the scary and violent Alt Left, in other words.

                          MMT could have been MR without the “full employment” guarantee IF it didn’t take an Alice in Wonderland approach to describing operational reality. Indeed, from a quick perusal of blog entries and comments, it seems that a lot of MMTers actually do believe that MMT is accurately describing operational reality. Even I have gotten mixed up with what is MMT and what is MR. If anything, humans are prone to believing in control fantasies.

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                          Posted by MachineGhost
                          Answered on 12/31/2016 8:48 PM
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                            And BTW, capitalism is eons old not just 200-years. Capitalism is independent of any government, so it sounds to me like you’re conflating individual envy and voluntary exchange with state capitalism which is essentially what’s been crystallized as mainstream orthodox neo-liberal economics. All ideologies are equal, but some ideologies are more equal than others. :)

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                            Posted by MachineGhost
                            Answered on 12/31/2016 8:56 PM
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                              Also Paul, you should read the below report before you keep drinking the watermelon-flavored Kool Aid. Here’s the abstract:

                              “There is a consensus among climate scientists that human activity is contributing to climate change. HOWEVER, CLAIMS THAT RISING TEMPERATURES POSE AN EXISTENTIAL THREAT TO THE HUMAN RACE OR MODERN
                              CIVILIZATION ARE NOT WELL SUPPORTED BY CLIMATE SCIENCE OR ECONOMICS; TO THE CONTRARY, THEY ARE EVERY BIT AS
                              FAR FROM THE MAINSTREAM AS CLAIMS THAT CLIMATE CHANGE IS NOT OCCURRING OR THAT IT WILL BE BENEFICIAL.
                              Analyses consistently show that the costs of climate change are real but manageable. For instance, the prosperity that the world might achieve in 2100 without climate change may instead be delayed until 2102.” [emphasis added]

                              http://www.manhattan-institute.org/html/climate-costs-context-9589.html

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                              Posted by MachineGhost
                              Answered on 01/01/2017 5:11 PM
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                                I understand this Q/A is getting far away from the question, but when it comes to the MachineGhost libertarian views, we need some corrections here. He sites Mr. Oren Cass and his conservative policy approaches to climate change and environmental regulation. Mr. Cass puts up a straw man “rising temperature”, and then proceeds to punch him down. The problems are real and likely will not be dealt with, thanks to the politics of climate change denial. Instead, we will have massive numbers of climate refugees on this earth. The increase in energy in our atmosphere is already being experienced by 100-year storms every year, droughts, and storm surges amplified by wind energies greater than we’ve had before.

                                These and many other problems resulting from climate change are addressed by the IPCC, drawing on the work of hundreds of scientists from all over the world, enable policymakers at all levels of government to take sound, evidence-based decisions. They represent extraordinary value as the authors volunteer their time and expertise. These folks are NOT drinking “watermelon-flavored Kool Aid.”

                                http://www.ipcc.ch/publications_and_data/publications_and_data_reports.shtml#4

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                                Posted by Dennis
                                Answered on 01/01/2017 6:58 PM
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                                  Yes, I didn’t realize I was raising a hot-button issue with climate change. Some people will never be convinced regarding climate change even when up to their necks in water :-)

                                  I believe an understanding of the current monetary system gives one the power to change it. Because capitalism is driven by individual aspirations, it can not be part of the “movement” to protect humanity. During WWII industry was “drafted” by government – capitalism was suspended in some respects. A corporation could not just produce anything it wanted because it was profitable. So I believe a democratic control of the creation of money may hold the only hope for reversing the decline in civilization we are witnessing. Banks (when not acting in a corrupt manner) do a pretty good job of underwriting, but that’s not sufficient. For instance, individual desires for loans can not be the driver for the massive infrastructure investments needed. Only government (the ultimate tool of successful grass-roots movements) can supply the demand needed.

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                                  Posted by Paul Spring
                                  Answered on 01/01/2017 9:16 PM
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                                    @Dennis IPCC is an organization with an ideological agenda; of course they’re collectively drinking the Kool Aid — their continuing political power, prestige and funding is contingent on forever beating the doom porn drums (similarly inverse for all of those anti-global warming institutions). I just put the detractors down to lacking wisdom and knowledge because only teenagers, 20-30 year olds at most are naive enough nowadays to embrace the new new doom porn of the chattering intelligentsia classes. Seen it happen many times and the outcome never changes: egg on face. So don’t go all in on doom porn unless you can readily admit you screwed up believing in B.S. in another decade or two.

                                    @Paul The massive infrastructure investments “needed” is because they’re run, mismanaged and negligentized by government. Does that maybe give you a little clue as to why such massive investments are now “needed” in the first place? More of the same will just repeat the cycle down the road. Regardless, from what little I’ve read, Trump’s plan is to let the private sector fix most of it up via tax credits. There’s simply no long-term planning without property ownership based on the profit motive. I don’t know if privatization is part of the deal but that would go a long ways towards heading off a repeat scenario in the future.

                                    “Democratic control” means either free minds in free markets voluntarily deciding whats best for themselves, or a very small cabal of elected politicans and unelected bureaucrats making decisions for the other 99% of the population and forcing that 99% to live with their decrees without recourse. Which form will you choose and why?

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                                    Posted by MachineGhost
                                    Answered on 01/03/2017 2:24 AM
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                                      @MachineGhost We have different priorities. My main priority is survival. I have entered into a contract with my fellow citizens (US Constitution), giving up some freedoms in exchange for a democratic society that will enable me to survive in a very hostile world. This includes infrastructure, police, the legals system, education, pollution control, healthcare, etc. The current democracy has been corrupted due to an enormous concentration of power. I am, in my own way, working to to change that. What is your plan?

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                                      Posted by Paul Lebow
                                      Answered on 01/03/2017 12:58 PM
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                                        My plan is fighting government corruption and the global warming religious cult is unfortunately a current part of that, although I do not actively fund either pro or con. As always happens in the end, the objective truth will eventually overcome the political-religious fervor, so I am content to wait and rarely engage. But I would have preferred that the mind-independent facts floated their way up to the top of the political toilet, but it looks like Trump may try and force the shift via top-down politics at numerous executive agencies. Distasteful, because instituting the inverse of the global warming religious cult by coercion is not the way to an enduring, objective truth that everyone will agree upon. People that have bought into the B.S. in their own minds don’t react well to shock therapy.

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                                        Posted by MachineGhost
                                        Answered on 01/13/2017 5:59 PM
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                                          Religious cult? Do you mean the cult of denial? The odd thing is that instead of capitalizing on mitigating climate change, the corporate elites are too stupid not to defecate in their own living rooms for the sake of profit.

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                                          Posted by Paul Lebow
                                          Answered on 01/15/2017 4:27 PM
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                                            I’d say both left and right are religious cults on the issue, but the right has more of a conservative, “do no harm”, defensive position vs the zealot, interventionist and taxation position of the left. Truth closer to being objective is in the middle with the more rational lukewarmers. The ongoing censorship, ostracization and career suicide coercion of the watermelon left fostered against anyone else who dare even question their doom porn nihilism will have to go on the downswing for any rational sense to be “allowed” to enter the debate. There are cracks starting to appear already due to Trump’s win.

                                            I would also argue that the religious cult of the watermelon left and Wall Street have a lot in common in terms of the institutional constraints that produce bad outcomes for everyone else but themselves.

                                            It’s everywhere and always a messy business when objective reality gets distorted, warped and conflated up with political ideology. Take the personal jet trotting world leaders that flew to the Paris Climate Accord to argue that carbon emissions are “THE SINGLE BIGGEST THREAT TO HUMANITY” — over terrorism, deforestation, rampant poverty and economic calamity due to obscene debt levels PRODUCED BY THOSE SAME LEADERS.

                                            This has gotten way too off topic, so I’ll quit by offering the attached graph so you can awaken to a much broader perspective that you’re not receiving by being so close to the narrow leftist trees, that you can’t see the whole forest.

                                            Attachments:
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                                              Posted by MachineGhost
                                              Answered on 01/15/2017 10:53 PM
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                                                I don’t think the RMB can act as a USD. China’s financial system necessitates that it run current account surpluses. Having the RMB act as a form of international payment’d require China to rapidly liberalize its financial system. Note that the RMB trades at a different rate onshore vs offshore cuz of capital controls.

                                                China’s financial system is still very primitive. I don’t think it’s flexible enough to be the reserve currency. I could see the US having higher growth rates than China in the next decade and am beginning to think it might even be likely. Remember when China’s growth rates were 10% and saying they’d be 6% was considered bearish? Well, it’s near that number now. Especially if the current account surplus China’s got falls, China’ll be at <5% growth in a few years.

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                                                Posted by Suvy Boyina
                                                Answered on 01/15/2017 11:46 PM
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                                                  “MMT could have been MR without the “full employment” guarantee IF it didn’t take an Alice in Wonderland approach to describing operational reality. Indeed, from a quick perusal of blog entries and comments, it seems that a lot of MMTers actually do believe that MMT is accurately describing operational reality. Even I have gotten mixed up with what is MMT and what is MR. If anything, humans are prone to believing in control fantasies.”

                                                  ^THIS! I second this.

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                                                  Posted by Suvy Boyina
                                                  Answered on 01/15/2017 11:53 PM
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                                                    With regards to climate change, if you genuinely think that pumping C02 into the air from combusted fossil fuels (with life-cycles of hundreds of thousands of years at a minimum to tens of millions of year at a maximum) won’t create major impacts (when you release it in life-cycles within hundreds of years at a maximum), you’re delusional.

                                                    With that being said, is it easy to determine and measure the full impact it has? Absolutely not. We don’t know anything about that.

                                                    And MachineGhost is correct. Most firms are already taking serious steps to combat it, including oil companies working in stuff like carbon capture or complete cycle stuff. Switching from coal to natural gas via fracking while taking much of the CO2 released by fracking or natural gas combustion and dissolving it into crude in the refining process (this’s called complete cycle) adds another combustion for the same amount of CO2 released. Then you increase renewable energy production, combine it with a better grid, get more efficient in consumption, push for nuclear fuel using thorium reactors, and a few other things of the sort, you’ve got a real solution to climate change. However, this transition will take decades. There’s simply no other way cuz of the raw materials alone.

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                                                    Posted by Suvy Boyina
                                                    Answered on 01/15/2017 11:59 PM
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                                                      I am sure the US Dollar will eventually lose out due to our lack of investment in our own country in terms of education. Capitalism will run its course as demand shrivels as corporations squeeze as much out of what’s left of the dwindling middle class. But there is a lot of inertial and I don’t see US citizens scrambling for alternatives to the dollar. I guess the answer to my original question is, there aren’t.

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                                                      Posted by Paul Lebow
                                                      Answered on 01/16/2017 12:03 AM
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                                                        BTW, we don’t have a “democracy”. We’ve got free elections that determine our leaders within a Constitutional Republic. If you mean by democracy a liberal democratic structure within a Constitution that protects freedoms and restricts state power to what it needs to do, that’s what we’ve got. If you mean by democracy that everyone is “socially and democratically equal”, we do not have that.

                                                        In a political system based on “social and democratic equality”, the person with more votes wins. 40% of our Presidents elected in past 20 years have gone to the person with less votes. That’s not a political system built on “social and democratic equality”. The US is still a center-right country and Social Democrats will remain far-left.

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                                                        Posted by Suvy Boyina
                                                        Answered on 01/16/2017 12:03 AM
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                                                          This is the threat from climate change. Is it “science”? I’m not sure. The idea that science works from consensus is a joke. With that being said, climate change poses real risks. It’s unclear what those are. I’d be much, much more concerned about a rise in volatility of climate movements more that I’d be about a rise in mean temperatures globally. A rise in volatility and shifts in climate patterns creates huge risks. Denying these risks is flying blind in today’s world.
                                                          http://suvysthoughts.blogspot.com/2016/06/on-climate-change-climate-science.html

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                                                          Posted by Suvy Boyina
                                                          Answered on 01/16/2017 12:08 AM
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                                                            Yes, the physics is overwhelming – climate change, ocean acidification, deforestation is all real. What physics can’t predict at this point is when and what the intricate interdependencies will lead to. We have hit the earth with a massive energy step function, any EE undergrad knows the implications of that.

                                                            Unfortunately all of the “remedies” stated above are too little, too late. Given that animal agriculture is possibly the biggest contributor to climate change, deforestation and world hunger, its clear that the obvious solution with any hope, a world going vegan, is less palatable than the end of civilization as we know it. MachineGhost (or his or her grandkids) will get to see his or her predictions played out.

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                                                            Posted by Paul Lebow
                                                            Answered on 01/16/2017 12:23 AM
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                                                              Oh, and cherry picking data for a small section of the planet, the Greenland ice sheet, proves nothing. In fact, the global temperature was much cooler than today and the warming of Greenland was a local phenomenon.

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                                                              Posted by Paul Lebow
                                                              Answered on 01/16/2017 12:51 AM
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                                                                The “predictions” are highly sensitive to initial conditions and even the slightest shift of weather. The idea that these “predictions” are accurate is something unlikely. The worst impact of climate change will be something we don’t fully understand. Environmental degradation creates risks (it’s effectively a form of rent-seeking behavior). The biggest risk is that scientists drastically understate the risks of climate change, not that they can accurately predict what’s gonna happen.

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                                                                Posted by Suvy Boyina
                                                                Answered on 01/16/2017 1:12 AM
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                                                                  Yes. The fact that we are plummeting down a steep ravine doesn’t “predict” what will happen when we hit bottom.

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                                                                  Posted by Paul Lebow
                                                                  Answered on 01/16/2017 9:39 AM
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                                                                    Fair enough.

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                                                                    Posted by Suvy Boyina
                                                                    Answered on 01/17/2017 4:57 PM
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