[p2p-research] Scientific American: Does Economics Violate the Laws of Physics?

[Paul D. Fernhout]

Stan Rhodes wrote:
> Q1) If there is a reasonable argument that economics is ultimately a study
> of thermodynamics, what is that argument?
> 
> If we ignore the supersensationalist claim in the article (that "today's
> dominant economic thinking violates the laws of physics") and go with simply
> the sensationalist claim ("Neoclassical economics is inconsistent with the
> laws of thermodynamics"), then one must ask
> 
> Q2) How is neoclassical economic theory inconsistent with the laws of
> thermodynamics?
> 
> Neoclassical growth theory is not just one thing.  The Solow model, for
> example, is very simplified, and growth theory is a realm of much debate.
> In science, the whole point of theory and modelling is to map the terrain of
> reality.  It's hardly a surprise when theories are wrong--a map is always
> simpler than the terrain it maps.  Good maps simply give us some predictive
> power.  That's science.  However, that thermodynamics somehow invalidates or
> disproves neoclassical growth theories is a far more specific claim, and
> requires extraordinary evidence.  I can't even think how it would be
> possible, which is why I asked these followups.
> 
> I don't know much about industrial ecology.  My basic understanding is the
> field looks at all materials and energy cycles in our "closed" system:
> essentially, the Earth.  So, it would try to define the boundaries of
> possible material and energy flows on Earth.  However, a closed system is
> not the same as an isolated one--Earth constantly receives energy, mostly
> from the Sun, which will continue for a very long time.

Yes, you are right that different laws apply to "open systems" than "closed 
systems". The earth receives energy from the Sun for the foreseeable future, 
and it also has great heat reserves of geothermal energy. But could supply 
hundreds of times and more than what we currently use. So, the Earth is open 
energetically.

Peak Oilers of the more extreme sort, like William Catton, just ignore this 
and say we are doomed no matter what we do.

More moderate peak oilers (our Michel?) just suggest a chaotic transition, 
with a range of how chaotic that transition will be and how exactly it will 
look and what the risks are of not coming out of it for whatever social 
reasons. That is not an unreasonable position.

Even though I believe that renewables are growing exponentially at a rate 
that will mean we could be using them near 100% in twenty or thirty years, I 
accept that we may blow ourselves up in the meanwhile for all sorts of 
ideological reasons connected with the transition from scarcity to 
abundance. So, scarcity beliefs may be a self-fulfilling prophecy in that 
sense, which is why they bother me. :-) But we certainly have enough coal 
for centuries, so there is no "thermodynamic reason" we can not switch 
smoothly to renewables over the next twenty to thirty years.

However, there still are limits. It's true that local heat changes can 
effect ecologies, as talked about here:
http://freakonomics.blogs.nytimes.com/2009/10/20/are-solar-panels-really-black-and-what-does-that-have-to-do-with-the-climate-debate/

Heat exhausts from power plants do change the ecologies of streams. Heat 
from roofs, roads, motors, and appliances changes climates around cities.

Cutting down trees changes climates, as does putting them back.
   "Tree Bank - A Man Who Planted Trees"
   http://www.youtube.com/watch?v=Uwg0Jx6pspg

Pollution from industrial process can effect human and biological health. So 
can the contamination of the food supply or local environments by various 
industrially produced compounds used in everyday items.

It is reasonable to think about how any specific technology may be able to 
support only so many people within a carrying capacity. We may be near that 
limit for 20th century technologies so dominant in the USA and abroad, 
especially if you consider the collapse of fisheries.

Still, it is unreasonable, given history, to suggest technological advances 
can't improve on that carrying capacity in theory, or that ways can't be 
found to better manage fisheries and other common resources, including 
lifestyle changes to eating less meat.
http://www.westernwatersheds.org/watmess/watmess_2002/2002html_summer/article6.htm

And, there are also the oceans and outer space, both which offer places for 
many more people to live and vast amounts of physical resources.

Oceans could support billions of more people on artificial islands, if they 
used sustainable zero-emissions manufacturing.
http://www.mel.nist.gov/programs/slim.htm
http://en.wikipedia.org/wiki/Seasteading

Outer space especially could support quadrillions of people around the Sun 
in the solar system, by using materials from moons and asteroids to build 
space habitats.
http://listcultures.org/pipermail/p2presearch_listcultures.org/2009-August/004123.html
http://www.kurtz-fernhout.com/oscomak/SSI_Fernhout2001_web.html

So, there is lots of room for growth still, if we wanted to. But it appears 
industrial civilization is leading to crashing birth rates, so running out 
of room is really the least of our problems right now (see my "Peak 
Population Crisis" post. :-)
http://listcultures.org/pipermail/p2presearch_listcultures.org/2009-August/004174.html

But with all that said, yes, modern mainstream macroeconomics is stupid 
because it confuses physical capital with fiat dollars, and it is also 
stupid because it is build around continuous exponential growth (to keep 
profits flowing, because otherwise, profits drop to zero by competition). 
Imaginary fiat dollars can grow infinitely. Physical capital is limited by 
our current technology and current access to resources.

Economists confuse the map for the territory:
   "Data and Reality [Excerpts]"
   http://www.bkent.net/Doc/darxrp.htm

A cybernetic approach can help economists move beyond that confusion:
http://www.pdfernhout.net/post-scarcity-princeton.html
"Some comments on the PU Economics department and related research 
directions from a post-scarcity perspective ... Like Kurzweil, PU economists 
could start applying their skills to charting trends in the real basis of 
prosperity. They need to move beyond charting derived trends that are social 
constructions like fluctuations in fiat currency. They need to start 
admitting that as a fiat currency system breaks down with a transition to 
the emerging post-scarcity economy, dollars are no longer a very good way to 
measure things (if they ever were). They need to remember that currency is 
as arbitrary system related to a current economic control system which is 
rapidly becoming obsolete. Fiat dollars are essentially ration units, and 
rationing is becoming obsolete as part of the emerging post-scarcity 
society. For example, personal internet bandwidth use and server disk space 
are now so cheap as to be effectively "too cheap to matter" except in the 
most extreme cases for some small number of individuals. So, PU economists 
need to get back to basics and start charting real physically measurable (or 
estimateable) things. And then they need to think about the interrelations 
of those real things. Essentially, they can still use a lot of their old 
skills at analysis, but rather than apply them to one thing, money, they 
need to apply them to thousands of individual measurements of aspects of 
life-support and production. And the challenge will be in seeing how to make 
predictions about systems where these thousands of factors are difficult to 
interchange for each other (for example, topsoil depth versus sewing machine 
production). "

As is pointed out in the video "Money as Debt I & II", exponential growth of 
debt by itself can create problems:
   "Money as Debt II Promises Unleashed"
   http://www.youtube.com/watch?v=rxo_XPdpI_s
   http://www.moneyasdebt.net/

As can growth of productivity where the gains go to just a few and the 
result is lent to workers instead of paid to them:
   http://www.capitalismhitsthefan.com/

One of the biggest problems today with the "Great Recession" is that the 
imaginary fiat dollars have grown to have such a powerful sway over the 
collective human imagination that these processes have poisoned our social 
networks.  Despite having an intact physical plant and lots of resources, 
our physical economy is shutting down because of this belief in the 
importance of imaginary fiat dollars, combined with having those digital 
blips in a few banking computers pile up in the accounts of a few people.

If the global economy was a person dying in a hospital with a perfectly 
health body and brain, we'd be busy talking about things like "lost the will 
to live" or "psychological trauma" or something like that. Instead, the news 
is full of endless official sounding pronouncements about the movement of 
dollars and euros and yuan, as well as new plans for moving them around in 
different ways.

As Douglas Adams said:
http://thinkexist.com/quotation/this_planet_has-or_rather_had-a_problem-which_was/339431.html
“This planet has -- or rather had -- a problem, which was this: most of the 
people living on it were unhappy for pretty much of the time. Many solutions 
were suggested for this problem, but most of these were largely concerned 
with the movements of small green pieces of paper, which is odd because on 
the whole it wasn't the small green pieces of paper that were unhappy."

Still, moving tokens around is not inherently bad. It depends on the social 
and industrial context (including whether there is an equitable distribution 
of the tokens, by either good jobs or a basic income or charity and so on). See:
   http://en.wikipedia.org/wiki/Kanban
"Kanban is a signaling system to trigger action. As its name suggests, 
kanban historically uses cards to signal the need for an item. However, 
other devices such as plastic markers (kanban squares) or balls (often golf 
balls) or an empty part-transport trolley or floor location can also be used 
to trigger the movement, production, or supply of a unit in a factory. It 
was out of a need to maintain the level of improvements that the kanban 
system was devised by Toyota. Kanban became an effective tool to support the 
running of the production system as a whole. In addition, it proved to be an 
excellent way for promoting improvements because reducing the number of 
kanban in circulation highlighted problem areas.[2]"

Modern economics is basically all about controlling social and industrial 
processes using Kanban tokens (called dollars, yen, euros, or whatever). I 
sometimes call them "ration units" because that is what they really are to 
people in an industrial society.

But as Ryan's great find shows:
"High-Speed Robot Hand Demonstrates Dexterity and Skillful Manipulation" 
http://www.hizook.com/blog/2009/08/03/high-speed-robot-hand-demonstrates-dexterity-and-skillful-manipulation
within twenty years, mainstream macroeconomics will be laughable, since, as, 
(to use Nathan's term) the value of most labor has diminished so much that, 
(in the Triple Revolution's terms), the income-through-jobs link as granting 
the main right to consume becomes, (in my terms :-) "mythologically unviable".

Although, from the other end, the progress in military robotics may make the 
earth humanly unviable in twenty years.

So, I see twenty years as the hard stop for social transformation.

But, like any wave that hits the edge of a wave tank, there may be smaller 
echos before then. Eventually people will see the iceberg coming, or notice 
the little chunks of ice ahead of it (whether free stuff, fancy robots, 
economic dislocations, failing companies, or other such things). One might 
try to map out what the next twenty years might look like on those terms. 
One might even, based on this, argue that we may see serious radical social 
transformation in only ten or so years, as the looming iceberg of industrial 
robotic abundance becomes visible to more and more people, or alternatively, 
the iceberg or military robotic despair, used to create the scarcity our 
current ideology needs to function.

 From a book written in 1981:
   http://www.notable-quotes.com/u/utopia_quotes.html
"Think of it. We are blessed with technology that would be indescribable to 
our forefathers. We have the wherewithal, the know-it-all to feed everybody, 
clothe everybody, and give every human on Earth a chance. We know now what 
we could never have known before -- that we now have the option for all 
humanity to make it successfully on this planet in this lifetime. Whether it 
is to be Utopia or Oblivion will be a touch-and-go relay race right up to 
the final moment. (BUCKMINSTER FULLER, Critical Path)"

So, people have been seeing waves from that iceberg in 1981 (Fuller), 1964 
(Triple Revolution) and even before that in the 1920s: :-)
   http://www.cscs.umich.edu/~crshalizi/Bernal/world/
"Imagine a spherical shell ten miles or so in diameter, made of the lightest 
materials and mostly hollow; for this purpose the new molecular materials 
would be admirably suited. Owing to the absence of gravitation its 
construction would not be an engineering feat of any magnitude. The source 
of the material out of which this would be made would only be in small part 
drawn from the earth; for the great bulk of the structure would be made out 
of the substance of one or more smaller asteroids, rings of Saturn or other 
planetary detritus. The initial stages of construction are the most 
difficult to imagine. They will probably consist of attaching an asteroid of 
some hundred years or so diameter to a space vessel, hollowing it out and 
using the removed material to build the first protective shell. Afterwards 
the shell could be re-worked, bit by bit, using elaborated and more suitable 
substances and at the same time increasing its size by diminishing its 
thickness. The globe would fulfill all the functions by which our earth 
manages to support life. In default of a gravitational field it has, 
perforce, to keep its atmosphere and the greater portion of its life inside; 
but as all its nourishment comes in the form of energy through its outer 
surface it would be forced to resemble on the whole an enormously 
complicated single-celled plant."

That was written in 1920, almost a century ago.

Basically, modern economics is encountering long predicted "divide by zero" 
errors, as things become cheap, and resource accessibility becomes huge.
   http://www.google.com/#hl=en&q=divide+by+zero+economists

So anyway, the people at that conference got part of the picture. But not 
all of it. I think part of the reason for that is that, ideologically, it is 
easier to think we are all doomed than to contemplate the possible 
implications about radical changes to our society if we are not doomed. :-)
   "George Bush - "Imagine" (Bush is gone, let it go, people!)"
   http://www.youtube.com/watch?v=n41bRHlr76Y

--Paul Fernhout
http://www.pdfernhout.net/
http://www.beyondajoblessrecovery.org/