In an earlier post, I compared Minsky’s Financial Instability Hypothesis with Buzz Holling’s work on ecological resilience and briefly touched upon the consequences of wildfire suppression as an example of the resilience-stability tradeoff. This post expands upon the lessons we can learn from the history of fire suppression and its impact on the forest ecosystem in the United States and draws some parallels between the theory and history of forest fire management and macroeconomic management.
Origins of Stabilisation as the Primary Policy Objective and Initial Ease of Implementation
The impetus for both fire suppression and macroeconomic stabilisation came from a crisis. In economics, this crisis was the Great Depression which highlighted the need for stabilising fiscal and monetary policy during a crisis. Out of all the initiatives, the most crucial from a systems viewpoint was the expansion of lender-of-last-resort operations and bank bailouts which tried to eliminate all disturbances at their source. In Minsky’s words: “The need for lender-of-Iast-resort operations will often occur before income falls steeply and before the well nigh automatic income and financial stabilizing effects of Big Government come into play.” (Stabilizing an Unstable Economy pg 46)
SImilarly, the battle for complete fire suppression was won after the Great Idaho Fires of 1910. “The Great Idaho Fires of August 1910 were a defining event for fire policy and management, indeed for the policy and management of all natural resources in the United States. Often called the Big Blowup, the complex of fires consumed 3 million acres of valuable timber in northern Idaho and western Montana…..The battle cry of foresters and philosophers that year was simple and compelling: fires are evil, and they must be banished from the earth. The federal Weeks Act, which had been stalled in Congress for years, passed in February 1911. This law drastically expanded the Forest Service and established cooperative federal-state programs in fire control. It marked the beginning of federal fire-suppression efforts and effectively brought an end to light burning practices across most of the country. The prompt suppression of wildland fires by government agencies became a national paradigm and a national policy” (Sara Jensen and Guy McPherson). In 1935, the Forest Service implemented the ‘10 AM policy’, a goal to extinguish every new fire by 10 AM the day after it was reported.
In both cases, the trauma of a catastrophic disaster triggered a new policy that would try to stamp out all disturbances at the source, no matter how small. This policy also had the benefit of initially being easy to implement and cheap. In the case of wildfires, “the 10 am policy, which guided Forest Service wildfire suppression until the mid 1970s, made sense in the short term, as wildfires are much easier and cheaper to suppress when they are small. Consider that, on average, 98.9% of wildfires on public land in the US are suppressed before they exceed 120 ha, but fires larger than that account for 97.5% of all suppression costs” (Donovan and Brown). As Minsky notes, macroeconomic stability was helped significantly by the deleveraged nature of the American economy from the end of WW2 till the 1960s. Even in interventions by the Federal Reserve in the late 60s and 70s, the amount of resources needed to shore up the system was limited.
Consequences of Stabilisation
Wildfire suppression in forests that are otherwise adapted to regular, low-intensity fires (e.g. understory fire regimes) causes the forest to become more fragile and susceptible to a catastrophic fire. As Holling and Meffe note, “fire suppression in systems that would frequently experience low-intensity fires results in the systems becoming severely affected by the huge fires that finally erupt; that is, the systems are not resilient to the major fires that occur with large fuel loads and may fundamentally change state after the fire”. This increased fragility arises from a few distinct patterns and mechanisms:
Increased Fuel Load: Just like channelisation of a river results in increased silt load within the river banks, the absence of fires leads to a fuel buildup thus making the eventual fire that much more severe. In Minskyian terms, this is analogous to the buildup of leverage and ‘Ponzi finance’ within the economic system.
Change in Species Composition: Species compositions inevitably shift towards less fire resistant trees when fires are suppressed (Allen et al 2002). In an economic system, it is not simply that ‘Ponzi finance’ players thrive but that more prudently financed actors get outcompeted in the cycle. This has critical implications for the ability of the system to recover after the fire. This is an important problem in the financial sector where as Richard Fisher observed, “more prudent and better-managed banks have been denied the market share that would have been theirs if mismanaged big banks had been allowed to go out of business”.
Reduction in Diversity: As I mentioned here, “In an environment free of disturbances, diversity of competing strategies must reduce dramatically as the optimal strategy will outcompete all others. In fact, disturbances are a key reason why competitive exclusion is rarely observed in ecosystems”. Contrary to popular opinion, the post-disturbance environment is incredibly productive and diverse. Even after a fire as severe as the Yellowstone fires of 1988, the regeneration of the system was swift and effective as the ecosystem was historically adapted to such severe fires.
Increased Connectivity: This is the least appreciated impact of eliminating all disturbances in a complex adaptive system. Disturbances perform a critical role by breaking connections within a network. Frequent forest fires result in a “patchy” modularised forest where no one fire can cause catastrophic damage. As Thomas Bonnicksen notes: “Fire seldom spread over vast areas in historic forests because meadows, and patches of young trees and open patches of old trees were difficult to burn and forced fires to drop to the ground…..Unlike the popular idealized image of historic forests, which depicts old trees spread like a blanket over the landscape, a real historic forest was patchy. It looked more like a quilt than a blanket. It was a mosaic of patches. Each patch consisted of a group of trees of about the same age, some young patches, some old patches, or meadows depending on how many years passed since fire created a new opening where they could grow. The variety of patches in historic forests helped to contain hot fires. Most patches of young trees, and old trees with little underneath did not burn well and served as firebreaks. Still, chance led to fires skipping some patches. So, fuel built up and the next fire burned a few of them while doing little harm to the rest of the forest”. Suppressing forest fires converts the forest into one connected whole, at risk of complete destruction from the eventual fire that cannot be suppressed.
In the absence of disturbances, connectivity builds up within the network, both within and between scales. Increased within-scale connectivity increases the severity but between-scale connectivity increases the probability of a disturbance at a lower level propagating up to higher levels and causing systemic collapse. Fire suppression in forests adapted to frequent undergrowth fires can cause an accumulation of ladder fuels which connect the undergrowth to the crown of the forest. The eventual undergrowth ignition then risks a crown fire by a process known as “torching”. Unlike understory fires, crown fires can spread across firebreaks such as rivers by a process known as “spotting” where the wind carries burning embers through the air – the fire can spread in this manner even without direct connectivity. Such fires can easily cause systemic collapse and a state from which natural forces cannot regenerate the forest. In this manner, stabilisation can cause changes which cause a fundamental change in the nature of the system rather than simply an increased severity of disturbances. For example, “extensive stand-replacing ﬁres are in many cases resulting in “type conversions” from ponderosa pine forest to other physiognomic types (for example, grassland or shrubland) that may be persistent for centuries or perhaps even millennia” (Allen 2007).
Long-Run Increase in Cost of Stabilisation and Area Burned: The initial low cost of suppression is short-lived and the cumulative effect of the fragilisation of the system has led to rapidly increasing costs of wildfire suppression and levels of area burned in the last three decades (Donovan and Brown 2007).
Dilemmas in the Management of a Stabilised System
In my post on river flood management, I claimed that managing a stabilised and fragile system is “akin to choosing between the frying pan and the fire”. This has been the case in many forests around the United States for the last few decades and is the condition into which the economies of the developed world are heading into. Once the forest ecosystem has become fragile, the resultant large fire exacerbates the problem thus triggering a vicious cycle. As Thomas Bonnicksen observed, “monster fires create even bigger monsters. Huge blocks of seedlings that grow on burned areas become older and thicker at the same time. When it burns again, fire spreads farther and creates an even bigger block of fuel for the next fire. This cycle of monster fires has begun”. The system enters an “unending cycle of monster fires and blackened landscapes”.
Minsky of course understood this end-state very well: “The success of a high-private-investment strategy depends upon the continued growth of relative needs to validate private investment. It also requires that policy be directed to maintain and increase the quasi-rents earned by capital – i.e.,rentier and entrepreneurial income. But such high and increasing quasi-rents are particularly conducive to speculation, especially as these profits are presumably guaranteed by policy. The result is experimentation with liability structures that not only hypothecate increasing proportions of cash receipts but that also depend upon continuous refinancing of asset positions. A high-investment, high-profit strategy for full employment – even with the underpinning of an active fiscal policy and an aware Federal Reserve system – leads to an increasingly unstable financial system, and an increasingly unstable economic performance. Within a short span of time, the policy problem cycles among preventing a deep depression, getting a stagnant economy moving again, reining in an inflation, and offsetting a credit squeeze or crunch….As high investment and high profits depend upon and induce speculation with respect to liability structures, the expansions become increasingly difficult to control; the choice seems to become whether to accomodate to an increasing inflation or to induce a debt-deflation process that can lead to a serious depression”. (John Maynard Keynes pg163–164)
The evolution of the system means that turning back the clock to a previous era of stability is not an option. As Minsky observed in the context of our financial system, “the apparent stability and robustness of the financial system of the 1950s and early 1960s can now be viewed as an accident of history, which was due to the financial residue of World War 2 following fast upon a great depression”. Re-regulation is not enough because it cannot undo the damage done by decades of financial “innovation” in a manner that does not risk systemic collapse.
At the same time, simply allowing an excessively stabilised system to burn itself out is a recipe for disaster. For example, on the role that controlled burns could play in restoring America’s forests to a resilient state, Thomas Bonnicksen observed: “Prescribed fire would come closer than any tool toward mimicking the effects of the historic Indian and lightning fires that shaped most of America’s native forests. However, there are good reasons why it is declining in use rather than expanding. Most importantly, the fuel problem is so severe that we can no longer depend on prescribed fire to repair the damage caused by over a century of fire exclusion. Prescribed fire is ineffective and unsafe in such forests. It is ineffective because any fire that is hot enough to kill trees over three inches in diameter, which is too small to eliminate most fire hazards, has a high probability of becoming uncontrollable”. The same logic applies to a fragile economic system.
Update: corrected date of Idaho fires from 2010 to 1910 in para 3 thanks to Dean.