Just as modern-day central banks increase interests rates to slow growth, so the twelfth-century Church raised interest rates by denying heaven to those who lent money for profit. Though the Church used scripture to justify its action, there was a widely held view among Church canonists—the Church’s lawyers—that there was no doctrinal ban on usury in early Catholic teachings or scripture. As they noted, Jesus threw the moneylenders out of the Temple. He thought it wrong to engage in such business in the Temple, but he did not argue that the business was wrong. He just wanted it taken outside. And of course we should remember that the Church had not used scripture to ban usury in its preceding thousand years.
Enforcing the ban on moneylending for profit (and why else would someone lend money?), however, proved to be a difficult problem. The sin of usury required intent: the moneylender had to intend to make a profit, so whether the moneylender did or did not actually make a profit was beside the point. The Church recognized how hard it was to determine whether a lender intended to make a profit.
To deal with intent, the Church wisely shifted enforcement from its lawyers to its theologians. They reasoned that while human law might fail to recognize a usurious loan, God knew whether a lender intended to make a profit no matter what subterfuge was used to mask the return. Therefore, anyone having made such a profit and failing to make restitution or to show sufficient contrition before death was condemned eternally.
To facilitate restitution for usury, and to heighten the threat of damnation associated with lending, the Church established new institutions. The Fourth Lateran Council (1215), for instance, made annual oral confession mandatory. The Church distributed confessor’s manuals with specific instructions for dealing with merchants and others likely to have engaged in usury. Through the confessional, the Church provided a means by which those otherwise damned for usury could save their souls. The path to forgiveness, however, generally included making financial restitution to the Church rather than to those from whom a profit had been made. While the threat of eternal damnation was powerful indeed in the twelfth century, still, moneylending continued.
Of course, merchants and others continued to devise clever schemes to hide what they were doing. They not only manipulated exchange rates but also wrote misleading contracts and created false stock companies (sound familiar?) to hide their true financial arrangements. The risks (including eternal damnation) had been raised, so naturally the expected rate of return had to rise too. The consequence was to make loans costlier and thereby to diminish money for investments and growth relative to what it otherwise would have been.
If we look at last wills and testaments after 1215 we discover a great increase in deathbed confessions of usury. These confessions were frequently accompanied by wills that make penance by leaving money to the Church to make up for the dying sinner’s usurious past. This was a great boon to Church income and took a great deal of money out of the secular economy. It must have left relatives pretty unhappy, but how could they argue against the greater good of eternal salvation?
During the twelfth century the Church also adopted new rhetoric that limited growth even as it promoted wealth within the Church’s lands. At the same time that new mendicant orders like the Cistercians built and operated wind and water mills and other labor-saving devices to improve efficiency, the Church began to promote the view that idle hands are the work of the devil. The Church discouraged the spread of machines and other labor-saving technology in the secular realm (though not within its own domain). Certainly by discouraging the spread of labor-saving technology, the Church was reducing labor productivity and thereby economic growth in the lay sector. This, as we saw, could only improve the pope’s chances of getting the bishops he wanted.
Kings, of course, did not sit idly by while the pope worked to strengthen his hand and weaken theirs. The decades immediately after the Concordat of Worms saw a dramatic flowering of political institutions in England, in France, and elsewhere on the Continent. Whether intentionally or not, many of these new institutions and programs challenged the pope’s influence and secured a higher economic growth rate for the king’s subjects, and thus higher tax revenues for the king—higher, that is, than they would have been if the pope’s policies had been left unchallenged. Consider, for instance, the series of legal reforms introduced by Henry II (you know, The Lion in Winter) in England during the mid-twelfth century. These reforms became the foundation of English common law.
Henry moved to protect property rights and rights of inheritance. These actions made it easier for peasant families to predict whether they would continue to benefit from the land they worked after the head of the family died or whether the lord of the manor would take away their opportunity to farm the land. Henry’s writs greatly shortened the judicial process for determining rights of access to the land and made for a more smoothly operating agricultural system. His new rules proved highly popular and effective in securing the property rights that are essential to economic growth, and they enhanced the king’s credibility as the person who would ensure order and justice in matters of property. Before the writs, tenant farmers were reluctant to invest in their land, but once Henry’s writs protecting property rights were in place, more effort was made by those working the land to produce more—for their own benefit as well as for the benefit of the lord of the manor.
Henry did not limit himself to improving property rights for ordinary people. He also acted to impose restrictions on Church rights, a bold move indeed. Through a writ called utrum, he asserted the king’s primacy in determining whether a dispute belonged in his secular courts or in the church’s ecclesiastical courts. Prior to Henry there was a presumption in favor of the jurisdiction of the ecclesiastical courts. Utrum reversed this presumption among litigants in England, a presumption that had been in place since the time of William the Conqueror a century earlier. Finally, Henry also moved to protect the patronage system that gave landowners the benefit of choosing clerics for appointment in their personal churches. This ran directly counter to the efforts of the church to take all such influence away from the secular domain, as is evident from the rulings in Lateran II (1139) and III (1179).
Henry’s effort to strengthen his hand against the church was further reinforced by his use of the jury system to replace trial by ordeal. Trial by ordeal decided innocence or guilt through the presumed intervention of God. Two common ordeals, both supervised by the Church, involved submersion of the accused in deep water or forcing the accused to hold a red-hot piece of iron for a prescribed amount of time. Failure to stay submerged for the prescribed time was taken as proof of guilt, as was the inability to hold the red-hot iron. As Henry’s legal adviser observed at the time, guilt or innocence had more to do with the thickness of one’s calluses or the ability to hold one’s breath than anything else.
The shift to a jury system helped weaken Church institutions and income. Trials by ordeal were supervised by the clergy, who were well compensated for their participation. For instance, two priests are known to have been paid ten shillings for blessing the ordeal pits near Bury St. Edmunds in 1166. At the time, a worker’s daily wage was about one penny, and a villein and his entire family could be purchased for 22s.2 So 10s for a blessing was a significant amount of money. At 12 pennies to the shilling, the blessing cost the equivalent of 120 days of labor for an ordinary worker. That amounts to over $5,600 at the current U.S. minimum wage just to get the ordeal pit blessed (it’s about double that when evaluated relative to the income of the average American worker rather than those earning just minimum wage). With the stroke of a pen, Henry cut Church income substantially and increased his own by introducing the jury system.
The administrative structure of the modern state also began to emerge in the twelfth and thirteenth centuries. The king’s right to levy taxes for reasons other than necessity gradually developed in exchange for political concessions to his subjects, most notably in 1297 when Edward I accepted Confirmatio Cartarum. Edward,
in “confirming the charter,” acquiesced to the changes that had been wrought by Magna Carta eighty years earlier (King John had agreed to and then promptly reneged on the deal). These new tax revenues gave the king the ability to muster an army without having to rely on the intricate rights and restrictions implied by the feudal order. Consequently, the bishop’s military guarantee to the king “through the lance,” granted at Worms, diminished in importance. The pope, in contrast, continued to rely on feudal commitments to raise an army.
King’s courts at fixed locations in England and in France replaced the itinerant justice of an earlier time, thereby centralizing judicial control in the hands of the king, further diminishing the role of the Church as an adjudicator of disputes and further emphasizing the king’s territorial sovereignty. Additionally, kings began to claim that they ruled by divine right, thereby challenging the pope’s special position as allegedly chosen by God. In the jockeying for control, both kings and church evolved new institutions and methods to foster or stymie economic growth and wrest political control.
The eventual result of all of this competition was just what the game set up at Worms predicts. The Church worked to keep income high within the ecclesiastic domain and low elsewhere. Kings worked to achieve the opposite, seeking control over courts and taxes wherever and whenever possible. Eventually, secular wealth became so great that, as the game implies, kings stopped caring who the bishops were. Kings no longer felt a need to keep the pope happy, and the dominance of the Catholic Church was replaced by the dominance of sovereign states in a secular world.
Now that we have seen how we could peer ahead to the big picture five hundred and more years after 1122, let’s do the same for our own time. Let’s take a look at the inconvenient truth that won Al Gore the Nobel Peace Prize.
The world seems to be undergoing significant warming. The rise in temperature is melting ice in the North Atlantic and elsewhere, raising ocean levels and threatening to sink low-lying island nations and mainland coastal areas. The gathering of more ferocious storms promises years of destructive forces from wind and rain. Higher temperatures will push some temperate climates into the subtropical zone and some subtropical environments into the great stifling heat of the tropics.
First, let me provide a little background on the issue of global warming. After years of debate, including warnings in the 1960s and 1970s of an approaching new ice age, there now seems to be broad agreement within the scientific community that the earth’s temperature is on the rise. How much of the rise is due to human activity and how much to a normal cycle in earth’s climate is less easily agreed on, mostly because the cycle seems much longer than available weather data. We know, for example, that the High Middle Ages (what we used to call the Dark Ages) were a warm period accompanied by rapid economic growth. We know things got colder, at least in Europe, roughly from the Renaissance until probably sometime in the nineteenth century. And we know things are getting warmer again. We also know the increase in temperature is larger than seems to have been true at any time over the past thousand or so years.3 Of course, in the earth’s history a thousand years is a short time, though on the human clock it is pretty long. Scientists seem to concur that the extra rise in temperature is associated with industrialization and modern chemical-fertilizer farming, and that fossil fuel use is among the big culprits. Obviously, concern about global warming is strong enough that there are ongoing international efforts to bring it under control and even reverse it.
What can game theory tell us about efforts like Kyoto, Bali, and Copenhagen—that is, international conferences to regulate greenhouse gas emissions—to find solutions to the real threat of global warming? What can we learn that will help us carve out a better future for our species and our environment in the centuries to come? Frankly, we will see that agreements like the Kyoto Protocol and the efforts at Bali or Copenhagen to reduce greenhouse emissions, especially carbon dioxide emissions, are not likely to matter. They may even be impediments to real solutions. That is not to say that there is not good hope for the future. There is, because global warming produces its own solutions.
Back in December 1997, 175 countries—not including the United States—signed the Kyoto Protocol. The Kyoto signatories agreed to a benchmark year, 1990, against which to establish targets for greenhouse gas reductions. Greenhouse gas emissions had been rising dramatically in the years between the benchmark and the agreement. The protocols call for a 5.2 percent reduction in greenhouse gas emissions relative to their levels in 1990. That is about equivalent to saying there should be nearly a 30 percent reduction when compared to the then expected emissions levels in 2010. Some signatories were called upon to make much greater sacrifices than others. For instance, the European Union agreed to reduce its emissions by 8 percent. The United States was asked to reduce its greenhouse gases by 7 percent, Japan by 6 percent, and so forth. A few countries, such as Australia, were given permission to increase their emissions. No restrictions were imposed on developing countries like India and China (or Russia, assigned a 0 percent reduction), although they are now among the world’s largest greenhouse gas polluters. The United States declined to sign on because it objected to the exemption given to rapidly growing economies like China’s and India’s.
Kyoto produced a large market in which polluters and nonpolluters could buy and sell “pollution rights.” This market has helped to rationalize decisions at the level of individual firms, but it alone has so far failed to result in the magnitude of reductions envisioned by the Kyoto Protocol. As we will see shortly, enforcing the 1997 agreement has been virtually impossible.
One consequence of the difficulties encountered since 1997 was a meeting in Bali, Indonesia, in December 2007. The Bali meeting had more modest goals than Kyoto. It represents an interim step on the way to a 2009 deadline by which it is hoped there will be a new international agreement in Copenhagen. After considerable resistance, the U.S. representative at Bali agreed to significant concessions at the last minute. This made it possible to set out the Bali Roadmap for future climate control. Now the question is, will these efforts work?
To address the prospects for controlling greenhouse emissions, especially carbon dioxide, let’s start with some data that reflect the views of the big players on global warming. These are the governments and interest groups with the most at stake. In all likelihood, any agreement that can be reached will be settled primarily among these few stakeholders. They include the European Union, the United States—divided between the proportion of American public opinion that favors regulating carbon dioxide and other greenhouse gas emissions and those opposed—China, and India. It also includes other relatively large economies such as Russia’s, Japan’s, Canada’s, and Australia’s, plus the growing economy of Brazil. For good measure, I have also represented environmental nongovernmental organizations (labeled here as NGOs), since they had a significant presence at Bali, and pro-environment and less sympathetic multinational corporations. In each case I have estimated potential influence in negotiations over an agreement to replace the Kyoto Protocol, position (explained in a moment), salience for mandatory emission controls, and the extent to which the stakeholder is committed to finding an agreement (even if it is not the one they favor) or will stick to their guns under political pressure (holding out for the policy they believe in). This last variable, as you know, is new to the new model I have been developing and testing for a few years. This is the model that I promised earlier I would apply to this case, just as I applied it to forecasts about Pakistan and other crises in the previous chapter
I have rated the players’ positions on a scale from 0 to 100. A position of 50 is equivalent to continuing the greenhouse gas targets that came out of the Kyoto Protocol in 1997. These standards, as I previously discussed, called for rollbacks based on 1990 emission levels. Higher values on the position scale reflect tougher standards. For example, 60 is a 10 percent toughening of standards relative to the 1990 benchmark, 100 a 50 percent incre
ase in mandatory greenhouse emissions reductions compared to 1990. Likewise, values below 50 reflect a weakening of the terms contained in the Kyoto agreement.
Ten years passed between the Kyoto negotiations and the new round of talks that began in Bali in 2007. There were intermediate discussions in 2000 and 2001, but these were not particularly dramatic. With that in mind, I have viewed the bargaining periods as fairly long, taking exchanges of ideas among the big players about how to deal with global warming as cycling around about once every five years. That means I have simulated the negotiated standards out for about 125 years. That is certainly a long time. We will want to take more seriously the predictions closer in than farther out, since a great deal can happen between now and 2130 (when none of us will be around to check on accuracy or praise success). Because so much can happen, I have simulated the data with random shocks to salience and to each stakeholder’s interest in building consensus or sticking to its guns. By randomly changing 30 percent of the salience values and 30 percent of the flexibility values in each bargaining round, we can look at a range of predicted futures to see whether the global warming simulations reveal strong trends. That will help us sort out how confident we can be about the toughness or weakness of future regulations of greenhouse gas emissions.
First let’s see what the big picture looks like. Then we will examine the simulations in more detail to get a sense of how optimistic or pessimistic we should be.
The heavy solid black line in figure 11.2 shows the most likely emission standard predicted by the game. The two heavy dotted lines depict the range of regulatory values that we can be 95 percent confident includes the true future regulatory environment according to the simulations. That range of values is pretty narrow, encompassing barely five points up or down through about 2050. After that, as we should expect, there is more uncertainty, but even as far into the future as 2130 the range is only about ten points up or down, so these are probably pretty reliable forecasts.
The Predictioneer’s Game: Using the Logic of Brazen Self-Interest to See and Shape the Future Page 27