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New sandpit

May 9th, 2011

Here’s a new sandpit for lengthy side discussion, rants on idees fixes and so on.

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  1. Ikonoclast
    May 9th, 2011 at 13:58 | #1

    Biophysical Economics

    Introduction

    The discipline of Biophysical Economics must be incorporated into mainstream economics. Limits to growth, which previously could be ignored, are now near. Economists who deny this reality will find their assumptions, methods and results invalidated as we approach the limits to growth. Progress in Biophysical Economics remains marginalised by vested interests and apologists for endless growth. These groups persist with outdated and dangerous economic models in the face of mounting objective evidence of an approaching crisis. Denial that the world economic system is in trouble can only continue until the final crisis exposes the manner in which endless growth capitalism is detached from the reality of biophysical limits in a closed, finite system.

    What is Biophysical Economics?

    To outline biophysical economics, we can rely on some current definitions.
    “Thermoeconomics, also referred to as biophysical economics, is a school of heterodox economics that applies the laws of thermodynamics to economic theory. Thermoeconomists maintain that human economic systems can be modelled as thermodynamic systems. Thermoeconomists argue that economic systems always involve matter, energy, entropy, and information. Moreover, the aim of many economic activities is to achieve a certain structure. In this manner, thermoeconomics applies the theories in non-equilibrium thermodynamics, in which structure formations called dissipative structures form, and information theory, in which information entropy is a central construct, to the modelling of economic activities in which the natural flows of energy and materials function to create scarce resources. In thermodynamic terminology, human economic activity may be described as a dissipative system, which flourishes by consuming free energy in transformations and exchange of resources, goods, and services.” – Wikipedia.
    (For brevity, some sentences and headings have been excised and these changes are not shown by the usual textual marks. The essential meaning has not been changed.)

    In their essay, “The Need For A New Biophysical-Based Paradigm In Economics For The Second Half Of The Age Of Oil” by Charles A. S. Hall and Kent A. Klitgaard, the authors deem it important to state first what Biophysical Economics is not. Their list includes;

    1. “Biophysical economics is in no way opposed to the use of markets and market theories for distributing routine economic goods and services, nor is it in any way opposed to price incentives for doing many things.”
    2. “By itself it (biophysical economics) has no value judgments about the distribution of wealth…”
    3. ” While it (biophysical economics) is obviously based on the biophysical world, it acknowledges that there are many critically important issues that are not well addressed by biophysical means but that lie within the social realm…”
    4. “Perhaps most importantly biophysical economics is not about putting prices on the processes and functions of nature within a system of conventional economics, but rather in evaluating them on their own terms–although sometimes monetary prices are useful as a secondary metric.”

    Now we can proceed to an excerpt defining biophysical economics from the perspective of Hall and Klitgaard;
    “Biophysical economics is a system of economic analysis that is based on the biological and physical (as opposed to social) properties, structures and processes of real economic systems as its conceptual base and fundamental model. It acknowledges that the basis for nearly all wealth is nature, and views most human economic activity as a means to increase (directly or indirectly) the exploitation of nature to generate more wealth. As such, it focuses on the structure and function of real economies from an energy and material perspective, although it often considers the relation of this structure and function to human welfare and to the money (i.e. dollar) flows that tend to go in the opposite direction to energy (Odum, 1972).” – Hall and Klitgaard op cit.

    The Case for Biophysical Economics

    The need to fully develop Biophysical Economics as a new branch of economics (but not as a root and branch replacement) derives particular force from the global approach to the limits to growth. Only calculations from biophysical economics will enable us to determine answers to questions like these. What are the energy (and material) limits to economic growth on earth? What role will non-renewable (dwindling) stocks play in the future? What role will renewable flows play in the future? What maximum flows will be possible from renewables? What minimum EROEI (Energy Return on Energy Invested) does a modern economy require to run successfully? Will an entirely renewables driven and still recognisably modern economy be EROEI-viable and at what level? Do we have still enough non-renewable stocks left to power both the current economy and the transition to a renewable flows driven economy? Where does population growth need to stop to avoid over-shoot?

    Scientists knowledgeable in systems analysis and thermoeconomics now argue that the limits to growth are near. Their judgements should be respected, just as those of climate scientists should be respected. The science is sound and the empirical evidence is clear. Orthodox economists, who won’t hear or won’t understand these arguments, either deny the limits problem, put it sometime in the future never-never or blithely assume that the market will address it in good time. If the limits are near then research in Biophysical Economics takes on the character of practical research which can be applied immediately as it yields empirically validated results. Even if the limits were not near it would not affect the case for Biophysical Economics. In that case research in Biophysical Economics research is basic or pure research at least until the limits become near. There is no prima facie case to ignore the need for Biophysical Economics research and many reasons to support it.

    In the development of physics, there are a clear examples of theories and mathematical models which functioned adequately within certain limits. Allowing for small errors and acceptable approximations, these models provided consistent explanations of empirical phenomena and enabled reliable predictions of future events. Newton’s Laws of Motion were excellent approximations of the empirical facts while the speeds involved were small fractions of the speed of light. Einstein had to elucidate a new model with new laws to explain motion and associated phenomena at speeds approaching the speed of light. Near approach to the limit, the speed of light, changed the rules for tolerable approximations. Approaching and coming up against the limits to growth will change many of the ground rules of economics as we currently understand them. The assumption of indefinitely sustained growth and all aspects of the current economy predicated on, dependent on or linked to this endless growth model will be comprehensively overthrown.

    Limits To Growth

    That limits to growth exist in any finite system cannot be doubted. The only debate can be whether certain limits are relatively near or not. Recent reviews of Limits to Growth modelling by Meadows et al prove their predictions to have been remarkably sound. The claims that the first LTG model predicted a collapse by 2000 are fallacious as a check of the literature shows. The same vexatious, mischievous and dangerous dishonesty drives anti LTG propaganda as drives anti Climate Science propaganda. A simple generic statement of limits to growth is: “Linear or Exponential Growth cannot continue indefinitely in a finite space or system.” Mathematical proof of this proposition is absurdly simple as is proof by physical example. A cylindrical container constructed to contain a maximum of 15 coins of a specific and uniform size can be filled in a linear or exponential sequence. One coin may be added each x seconds or coins may be added each x seconds in the exponential sequence of 1, 2, 4 , 8. In each case the cylinder is filled to its limit in a finite time.

    The earth is a finite, closed system. The proof that the spherical (or slightly oblate) earth is finite is that its circumference has been reliably measured as a finite distance of a little over 40,000 kilometres around the equator. The earth can be circumnavigated or orbited in a finite time at a given speed. The earth is finite. It’s resources are finite. A closed system, according to the proper thermodynamic definition is one where;
    • Mass cannot cross the boundaries of the system but energy can.
    A system where neither mass nor energy can cross the system boundaries is an isolated system. Perfect isolated systems do not exist except perhaps for entire universe itself. The earth closely approximates a closed system. Advocates of using incoming solar energy more intensively often complain about the definition of earth as a “closed” finite system. It is simply a formal definition, to delineate such systems from isolated systems and does not in any way deny the fact that the earth is open to energy coming in from the sun and to energy escaping by reflection and re-radiation.

    The earth and its resources are finite. To deny this in the scientific age is ignorance on a par with believing the earth is flat. Incoming solar energy (insolation) is a special case. This energy has a finite flux or flow but it will continue while the sun continues in its present state, probably another 5 billion years. This flow, on any human civilizational scale, will be effectively indefinite whilst not technically of infinite duration. Solar energy is our one energy hope for the long survival of an advanced, populous civilization provided the energy density (flux per unit area), collection efficiency (EROEI) and other resources necessary for the collection infrastructure are all sufficient to power this civilization. Solar energy provides energy for photosynthesis (food and biomass), wind power (via climate), hydroelectric power (via rain), photovoltaics and solar convection. Tidal power is provided (mainly) by the gravitational effects of the orbiting moon.

    Energy is the Key Resource

    Why does the Thermoeconomics or Biophysical Economics approach show such promise? The key is that energy is the ubiquitous and master resource in the system and the common and unifying flows element and metric in the Thermoeconomic model. Energy is the one resource which is always required, biologically and economically, both as a primary need and to enable utilisation of all other resources. This cannot be claimed for any of the other resources which are all materials. Water is a resource which might be said to somewhat approach energy in terms of being a necessary requirement for many processes but water is still not necessary for all processes nor to utilise all other resources.

    Calling energy the ubiquitous, master resource is not a category mistake nor any kind of conflation error. It is not a mistake to regard energy (as the capacity to do useful work) as a single, discrete, essential and non-substitutable resource. It is true there are different kinds of energy and different types and qualities of energy sources. For example, heat energy and electrical energy are different kinds of energy. Wood and petrol are different kinds of energy sources and embody different qualities including energy density. Determining energy released per unit mass or per unit volume are two ways of measuring the energy density of fuels when used. Energy is never created nor destroyed. Energy is fully convertible, one kind to another kind. So called “energy losses” in economic energy processes are simply losses as lower quality energy or energy in forms not required for the process in hand. As it is fully convertible, all forms of energy can be measured in the same manner.
    “Because energy is defined via work, the SI unit for energy is the same as the unit of work – the joule (J)… In slightly more fundamental terms, 1 joule is equal to 1 newton-metre and, in terms of SI base units: 1 J = 1kg x (m/s)^2.” – Wikipedia.

    Thus, a universal metric is available to measure, in terms of energy costs including embodied energy costs, the costs of processes, goods and services throughout the economy. Manufactured items and services can be considered as having an embodied energy value just as they can be considered as having an embodied labour value. This discussion must not be understood as a recommendation to abolish money but rather as a proposal to use the systems analysis of energy costs and flows as a powerful adjunct to the use of money costs and flows in making a fuller economic study. The use of each method (energy cost and money cost) will complement and inform the other. Our current universal metric for costing processes and items throughout the economy (money) has a key flaw. Money is abstract; customary in the market, legal tender as a fiat currency but alien to biophysical nature. While money, for the most part, functions well to measure costs in the self-enclosed, orthodox economic model it does not function well to measure costs in relation to the use of natural capital nor the creation of negative externalities.

    Market valued money has no fully developed way to value all the costs and consequences of appropriating resources from nature and dumping waste back to nature. If any attempt is undertaken, assumptions and guesstimates must be made and legislatively imposed to revalue these activities. The usefulness of Biophysical Economics here will include, but not be limited to, the provision of some ability to check assumptions and recalculate guesstimates to a greater degree of accuracy (via attention to energy supplies and flows) with regard to nature’s capacity to supply resources and absorb waste now and in the future. Robert Costanza hypothesized that a perfectly functioning free market would, through a complex evolutionary process, arrive at prices proportional to embodied energy content. Because the market is not perfect and never will be, explicit embodied energy calculations could help to pinpoint structural problems and sectional interest induced distortions and more properly value natural capital, non-marketed goods and services and negative externalities. For example, free markets fail to place a present and proper cost on profligate or unsustainable use of a currently abundant resource which will lead to costly or even crippling shortages in the future. An awareness of the stocks and flows of available energy resources for the world economy will be critical to issues of sustainability and environmental quality. In the final analysis it will be critical to the quality of human life and even human survival.

    The Source of Wealth

    If we are being reductionist, we can say that the immediate purpose of the economy is to create wealth for humans. Wealth is not properly an end in itself but is a means to support and enhance human life. What is the source of wealth? In simple terms, if we know the answer where to look for wealth, how to exploit the source and how to preserve the source for continuing exploitation. It is implicit that we must exploit but not over-exploit. As we shall show, nature or the environment is the source of wealth.

    For primitive societies before the advent of agriculture, we see clearly that survival came from use of the land and the right to roam over it. Material wealth (a tribe might be said to be rich or poor in food and furs relative to their needs) came from the land by means of the tribe’s efforts. The land (and sometimes the sea and the air) was the source of sustenance and wealth. The primary source of wealth in this case is clear. It is the land. The means of gathering or realising this wealth for human use also seems clear. It is human effort. A basic attempt at quantifying the relationship might simply be;
    Wealth garnered = Productivity of the land multiplied by human effort.

    The immediate antecedent of modern economics was Mercantilism which held sway in Europe from the 16th to 18th century. The Mercantilist view was that a nation’s wealth depended on its treasure of gold and silver. “Nations without access to mines could obtain gold and silver from trade only by selling goods abroad and restricting imports other than of gold and silver. The doctrine called for importing cheap raw materials to be used in manufacturing goods, which could be exported, and for state regulation to impose protective tariffs on foreign manufactured goods and prohibit manufacturing in the colonies.” – Wikipedia.

    This view marks a break from the primitive, ancient and medieval views that land is the source of wealth. A thumbnail critique of Mercantilism points out that it makes a fetish of money (a customary unit or denominator of exchange) or more precisely a fetish of one form of money, namely silver and gold coin or bullion. The Physiocrats, a collection of 18th century French thinkers, believed that agriculture was the basis of all wealth. Thus they, like the “noble savage”, saw the land as the source of sustenance and wealth. In the 18th Century French economy, land was the prime source of wealth. From a biophysical perspective, it is important to note that agriculture was then indeed a net source of energy to the economy. Today it is not, as the energy value in food from industrialised farm production is less than the energy used to grow it (in the form of fuel for farm machinery, embedded energy in farm machinery, fertilizers and irrigation systems etc). Naturally we employ this negative energy exchange because we produce more food overall and we can absorb calories in the form of bread but not in the form of hydrocarbons.

    Modern economic theory is usually said to begin with Adam Smith (1723–1790). What did Adam Smith think of the Mercantilists and Physiocrats? Adam Smith was highly critical of the mercantilists and convincingly demolished their position. Conversely, Smith described the physiocratic system as imperfect but “perhaps the purest approximation to the truth that (had) yet been published”. Smith implicitly accepts that land is the primary source of wealth. Perhaps we should say he saw land as the source of wealth and man as the gatherer, developer, transformer and distributor of that wealth for his own purposes. Smith wrote that the “real price of every thing … is the toil and trouble of acquiring it”. This is the beginning of a recognisable labour theory of value.

    In a resources sense, at least until the limits to growth are reached, what nature gives us is free and without encumbrance. There is only our toil and trouble in getting it. Given that estates were passed down by inheritance, it was convenient to forget that the free gifts of nature and land were not shared equally by all men. For various reasons, thinkers were led to further uses of the labour theory of value which held that the value of an exchanged commodity was determined by the labour that went into its production. This determination is mediated by the qualitative assessment of its use value and a quantitative (money), competitive assessment of that use value to determine market value. Marx used the labour theory of value to focus on the exploitation of labour by capital. The capitalist became rich by paying each labourer less than the true value of his work and appropriating the remainder (the surplus). Labour could be paid down to its “reproductive value” i.e. only that amount which allowed the worker to subsist, work and reproduce future workers.

    Marx and Engels theorised at a time when most physical labour was heavy and often dangerous, whether tied to feeding or operating crude early industrial machinery or not. Most mental labour consisted of tedious clerical copying, tallying and calculating in unhealthy and cramped conditions. Blake’s “dark satanic mills”, Engles’ “Conditions of the Working Class in England” and Dickensian counting houses all come to mind. Under these conditions, concern for workers and agitation for improvements had a strong humanitarian aspect as well as the decided revolutionary aspect feared by rulers and capitalists.

    Marx himself was presciently aware of the further development potential of automation (under capitalism) and its effect on the content and meaning of labour as “toil and trouble”. This becomes evident in a passage from Grundrisse (Grundrisse der Kritik der Politischen Ökonomie – Outlines of the Critique of Political Economy). Here, Marx just misses the final step which is to comprehend the real significance of energy of immediate non-biological origin, as a factor in production (as exergy or energy available for useful work).
    “As large-scale industry advances, the creation of real wealth depends less on labour time and the quantity of labour expended than on the power of the instrumentalities (Agenten) set in motion during the labour time. These instrumentalities, and their powerful effectiveness, are in no proportion to the immediate labour time which their production requires; their effectiveness rather depends on the attained level of science and technological progress; in other words, on the application of this science to production.”

    What Marx identifies as the cause of the instrumentalities’ (automated machinery) effectiveness, namely science and technology omits at least one key aspect of that science and technology. This is its capacity for unleashing large extra quantities of energy for useful work. Marx continues a little further on;
    “The theft of another man’s labour time, on which the social wealth still rests today, then appears as a miserable basis compared with the new basis which large-scale industry has created.”
    Once energy is recognised as the key feature, we then perceive that theft of labour is replaced by theft from nature in late stage capitalism. We deplete vast unrenewable stores of energy and spread entropy (waste and despoliation) everywhere.

    Marx’s line of thought clearly and consciously posited the looming obsolescence of his own version of the labour theory of value as it is bound to a certain phase of early industrial capitalist development. The vision of land (or nature) as the source of wealth was in the fore-ground in all stages of historical development up to and including the 18th Century Europe of the Physiocrats apart from the Mercantilist’s dead-end theory. This truth does not cease to exist or lose its essential content in 19th C Europe during and after the Industrial Revolution. It simply becomes background as the dramatic spectacle of human labour robbed by capital is fore-grounded by the conditions in this historical stage of industrial capitalism. Then, as a new historical age is reached (the age of automation and heavy industrialization) the labour theory of value, as a central and useful tool of political economy and even metrics, recedes into the background under the power of the instrumentalities (Agenten) which word we would now translate as automated machinery or machine-agents.

    Human labour is relegated to the background by the productive power of machine-agent automation in late stage, heavy industrial, capitalist production. The driving physical forces of this late stage capitalism are the enormous amounts of energy derived mainly from the earth’s non-renewable stock of fossil fuels. The driving agent-forces take on a more and more inhuman aspect as the automaton-agent elements of our systems seem to coalesce into a super automaton-agent or over-system which we can’t stop and which seems to operate us as much as we operate it. (Skynet anyone?) Just as the conflict of 19th C capitalism centred on the co-option of human labour and the antagonisms of labour and capital, which were then quasi-resolved by the power of the instrumentalities in the 20th C, the conflict of 21st C capitalism centres on the co-option of non-renewable energy and nature in general and the consequent antagonism of nature and capital. As we approach the limits to growth, late stage capitalism threatens to destroy the biosphere and the biosphere threatens to destroy capitalism.

    Conclusion

    Biophysical Economics provides the new techniques and tools for resolving the current antagonism of nature and capital. The engine of capitalism must be moderated and tamed if it is not to destroy or badly degrade that part of nature which we depend on, namely the biosphere. It is clear from the historical survey and current trends that the source of wealth is nature (the environment). The agent of wealth is man. The mediating system is the dissipative system known as the economy. While capital and the coalesced automaton-agent are allowed to continue in the irrational and dangerous autopilot mode preferred by corporate capital, broad democratic demand for action on climate change and resource depletion remains ignored and even suppressed.

    The autopilot analogy is appropriate. Autopilots have parameters and goals programmed in and this is the state of the economy under corporate capital. If the autopilot through some mistaken assumption, and consequent mistakes in the calculating and programming in of parameters and goals, is flying the whole shebang into a previously uncharted but now detected mountain and if the manuals and methods of the pilots (corporate capitalists) stubbornly and blindly deny the existence of the mountain and preclude reprogramming of the autopilot, then we have a critical problem. Hopefully, progress in Biophysical Economics will enable more people to see the problem and increase the demand for change.

    - Ikonoclast

  2. Ernestine Gross
    May 9th, 2011 at 14:40 | #2

    Ikonoclast, while labels aren’t important to the initiated, they do matter in the public domain.

    You refer to ‘mainstream economics. What exactly do you mean?

  3. Chris Warren
    May 9th, 2011 at 15:20 | #3

    Ernestine Gross :

    You refer to ‘mainstream economics. What exactly do you mean?

    This ain’t so hard. Paul Samuelson, Hal Varian, or any other textbook you can scoop up at the Co-op bookshop or library.

    Its good that people are willing to challenge mainstream nonsense, but I see few real prospects in following a ‘energy as master resource’ thread.

    For mainstream economists: 1 + 1 does not equal 2.

    It equals 2 * (1 + r).

    There’s their problem.

  4. Ikonoclast
    May 9th, 2011 at 16:15 | #4

    @Ernestine Gross

    I mean Neoclassical economics. A broad critique of Neoclassical economics has been put forward in the book “Debunking Economics” by Steve Keen. I generally view current mainstream economics as Neoclassical and badly hung up on unrealistic general equilibrium models.

    If I might make a not entirely flippant reply, I also mean (as “mainstream”) ALL the economists who did not predict the GFC and who thought and still think our current economic direction is fine. (All conditions have to be satisfied for them to be “mainstream”.)

    If I might ask a question. What do you regard as “mainstream economics” or (if that phrase means nothing to you) what do you regard as the significant schools of thought in economics and where do you place yourself in those schools?

  5. Alice
    May 9th, 2011 at 16:22 | #5

    @Ikonoclast
    Ikono – mainstream economics can be compared to mainstream media. Both persist in selling us lines that we know damn well arent good for the economy or us.

    I said lines and not spin because one of these groups knows how to spin, but the other just gets in a spin trying to say anything at all.

  6. Ernestine Gross
    May 9th, 2011 at 18:16 | #6

    @Chris Warren

    Paul Samuelson and Hal Varian are texts I recall from my time as undergraduate. But during my undergraduate time, there was also Keynes, Karl Marx, Friedman. But I do not know one text which contains what became ‘mainstream’ in practice, namely economic rationalism.

    In comparison to the texts available in the 1970s or 1980s, things have become much worse. There are now texts which make no sense at all.

    As for compound interest – IHO the specialisations and hence separation of subject matter of macro-economics, finance, monetary economics are not helpful. I still find Radner’s 1970s work on a sequence of markets for commodities and financial contracts to provide useful insights.

  7. Ernestine Gross
    May 9th, 2011 at 18:30 | #7

    @Ikonoclast

    “I generally view current mainstream economics as Neoclassical and badly hung up on unrealistic general equilibrium models.”

    You link the label ‘neoclassical’ with ‘general equilibrium models’ and, in the preceding paragraph, to Steve Keen’s book “Debunking Economics”.

    This is where the labelling becomes a problem. IMO, Steve Keen did a good job in questioning micro-economics as found in introductory texts but these introductory texts are not the sum total of mainstream economics and in particular, they assume not only that an equilibrium exists (while general equilibrum models are concerned with finding conditions under which it is conceivable that a solution exists which other people take for granted) but they assume it is unique! Moreover, where ‘neo-classical economics’ starts and where it finishes is by no means self-evident.

    I don’t belong to any ‘school of thought’ – I am a permanent student of economics.

  8. May 9th, 2011 at 19:01 | #8

    George Mobus, an American, is a key thinker on biophysical economics. His web site http://questioneverything.typepad.com/ is well worth a look for thoughtful analysis of where we are, and how energy is fundamental to soceiety.

  9. Ikonoclast
    May 9th, 2011 at 19:10 | #9

    @Ernestine Gross

    “Economic rationalism” will do me as a definition of current mainstream economics praxis in the Anglophone world.

    “Economic rationalism is an Australian term in discussion of microeconomic policy, applicable to the economic policy of many governments around the world, in particular during the 1980s and 1990s.

    Economic rationalists tend to favour Deregulation, Privatisation, a free market economy, privatisation of state-owned industries, lower direct taxation and higher indirect taxation, and a reduction of the size of the Welfare State. Near-equivalents include Thatcherism (UK), Rogernomics (NZ), and the Washington Consensus. To a large extent the term merely means economic liberalism, also called neoliberalism.’ – Wikipedia.

  10. Alice
    May 10th, 2011 at 20:17 | #10

    @Ernestine Gross
    I love this comment

    “I don’t belong to any ‘school of thought’ – I am a permanent student of economics.”

  11. Chris Warren
    May 10th, 2011 at 20:49 | #11

    Alice :
    @Ernestine Gross

    “I don’t belong to any ‘school of thought’ – I am a permanent student of economics.”

    This looks like the hallmark of someone just a little bit scared of their own theory (or embarrassed).

  12. Ikonoclast
    May 10th, 2011 at 21:30 | #12

    Apart from David Horton’s post we have been off topic and a side issue. On topic comments would be welcome.

  13. May 10th, 2011 at 21:49 | #13

    Why thank you Ikonoklast. I thought it worth introducing readers to George Mobus. His specific writing on the topic (his blog ranges widely in this general area – George is interested in systems analysis as applied to the problems the world faces both in terms of energy needs and environmental change) comes in http://questioneverything.typepad.com/question_everything/biophysical-economics/ which begins with a slide show talk introducing the topic. For example-
    “All economic work IS biophysical work. That is everything that we do to produce goods and services can be broken down into work as defined in physics. What makes it economic work is that it is effort applied to changing the world and the stuff in it into forms and processes that serve human wants and needs. Fundamentally, anything that supports human life is economic work.”

    I reckon he is an important thinker as the world changes before our very eyes. I would be particularly interested to know what Ikonoklast thinks of his work, and to get Prof Q’s reaction. Don’t know George personally by the way, just met him across the internet as he responded to some of my writing particularly in climate change and other environmental issues. He thinks I am too optimistic, a charge that has rarely been levelled at me!

  14. Chris Warren
    May 10th, 2011 at 22:38 | #14

    There are so many issues with this so-called “biophysical economics” that I really do not know where to start.

    It annoys me that people keep coming up with this stuff.

    If energy was free and unlimited, if our production was in perfect harmony with bio-’whatever’; the world would still have unemployment, poverty, trade wars, depressions, and corrupt politicians.

    Biophysical economics is just a trendy diversion for some self-infatuated wealthy OECD gremlin who is unhappy with the way things are portending, but really has no idea as to what is really going on. So they grab the nearest conceptual framework they can reach.

    In essence it just attempts to rearrange symptoms and heal the world with bio-placebo.

    It is indigestible in South America, China, SE Asia, India, Oceania, Central America and Africa.

    It may work in St Helena.

  15. May 11th, 2011 at 05:52 | #15

    Chris – you don’t think energy is fundamental to all societies?

  16. Ikonoclast
    May 11th, 2011 at 06:56 | #16

    @Chris Warren

    I doubt you read my post properly. I did say there was a need to fully develop Biophysical Economics (BE) as a new branch of economics but not as a root and branch replacement. Nobody (certainly not me) is touting BE as the answer to everything and all the ills of political economy.

    It’s not good enough to come up with statements like “It annoys me that people keep coming up with this stuff.” You need to put forward cogent criticisms.

    Starting an attempted refutation with “If energy was free and unlimited” is pointless. The key insight of BE is that energy is not free and unlimited. In addition, stating that any field of endeavour (say providing affordable medicine or doing BE research) does not solve all the ills of the world (like unemployment, poverty, trade wars, depressions, and corrupt politicians) does not invalidate that field of endeavour.

    Totally reforming political economy (to whatever system is the nearest approximation to perfect political economy on earth) will not solve the problem of biophysical limits on earth.

  17. Ernestine Gross
    May 11th, 2011 at 08:17 | #17

    Chris Warren :

    Alice :@Ernestine Gross
    “I don’t belong to any ‘school of thought’ – I am a permanent student of economics.”

    This looks like the hallmark of someone just a little bit scared of their own theory (or embarrassed).

    Alternatively, it could be someone who isn’t interested in apostolic debates.

  18. Chris Warren
    May 11th, 2011 at 11:25 | #18

    @Ikonoclast

    As I am interested in solving “unemployment, poverty, trade wars, depressions, corrupt politicians” (and etc), then in this context, other fields of endeavour that “does not solve” these is thereby rendered invalid.

    The validity of BE has to be some other basis. Whatever it is, it seems to skip these issues.

    In fact you cannot solve a bio-energy problem unless you solve economic contradiction in general. Bio-energy imbalance is a symptom of this underlying, long-running, compounding economic contradiction.

    It all started when Robinson Crusoe found he could get much wealthier by using free labour from ‘Friday’ a man-servant. He (ie mankind) then wanted another and another, and so started using more and more energy and resources.

    The use of energy and resources is a consequence.

  19. Chris Warren
    May 11th, 2011 at 11:35 | #19

    David Horton :
    Chris – you don’t think energy is fundamental to all societies?

    Energy is not uniquely fundamental to societies. There are so many things that are just as “fundamental”, that such labelling looses any real value in analysis or policy.

  20. John Quiggin
    May 11th, 2011 at 11:56 | #20

    Following up Chris’ point, water is at least as fundamental as energy. More importantly, though, since energy can neither be created and destroyed, what matters is entropy, which is much more complicated, and embodies information, which in turn is produced by human labour.

  21. Ikonoclast
    May 11th, 2011 at 14:31 | #21

    To avoid getting too technical (for my own sake as well as readers’ sakes), I said little about exergy. The simple definition of exergy is that is energy available for useful work. Exergy is what really matters.

    Here is a Wikipedia excerpt;

    “In thermodynamics, the exergy of a system is the maximum useful work possible during a process that brings the system into equilibrium with a heat reservoir.[1] When the surroundings are the reservoir, exergy is the potential of a system to cause a change as it achieves equilibrium with its environment. Exergy is the energy that is available to be used. After the system and surroundings reach equilibrium, the exergy is zero. Determining exergy was also the first goal of thermodynamics.

    Energy is never destroyed during a process; it changes from one form to another (see First Law of Thermodynamics). In contrast, exergy accounts for the irreversibility of a process due to increase in entropy (see Second Law of Thermodynamics). Exergy is always destroyed when a process involves a temperature change. This destruction is proportional to the entropy increase of the system together with its surroundings. ” – Wikipedia.

    Energy, or more precisely exergy, IS the key resource. It is the one resource required to utilise all other resources. It is the one resource, which if in superabundance, could be utilised to acquire every other resource and overcome shortages, dilutions or impurities in every other resource. I do not mean on its own. Of course, you need engines and machinery (all of which was previously manufactured using exergy and other resources).

    I have done all I can to convince people in this blog via the post above. The imminent world energy (or exergy) crisis will make converts of you all when you see the effects.*

    * There is a rider on this statement. If people persist in denialist mode and ignore empirical evidence then no amount of real world evidence will suffice for them.

  22. May 11th, 2011 at 19:40 | #22

    @John Quiggin John I guess the point would be that to get, move, and store water requires energy in various forms?

  23. Chris Warren
    May 11th, 2011 at 22:59 | #23

    Huh? there is no denialism? No-one is disputing a likely world energy crisis etc.

    However, if people type sentences, such as:

    …the final crisis exposes the manner in which endless growth capitalism is detached from the reality of biophysical limits in a closed, finite system. [#1 above]

    then obviously ‘the endless growth capitalism’ is a cause, and the conflict with ‘limits’ is a consequence.

    The necessary solution is to address root causes and not attempt to counter adverse consequences alone.

    Bad bio-energy phenonema are the result of false economic behaviours and associated features such as past colonialism and modern over-population. False economic behaviours are not the result of bad bio-energy concepts or principles.

    Unfortunately there is no solution to all this as society will only take the necessary action when it is far too late. So far I see no policy that can be implemented that results in China, Indonesia and India agreeing to force their people accept a lower standard of living than in OECD ex-colonial nations.

    So if Australia permits 2 and 3 car households, unlimited heaters and airconditoners, unlimited air travel, unlimited plastics, unlimited concrete constructions, and unlimited animal agriculture, then every other global citizen has the right to the same.

    There is no reason why the earth should remain habitable. So if capitalists make profits selling goods to developing nations, to lift their standard of living, then that is what they will do – and they will sack any government that gets in their way. Capitalists in general will only agree with bio-energy principles when it is far, far too late.

    So it seems that bio-energy or ‘biophysical economics” is merely a death-prayer for the few.

    Our real needs are elsewhere.

  24. May 12th, 2011 at 05:12 | #24

    Spam comment deleted

  25. Alice
    May 12th, 2011 at 07:08 | #25

    The comment you responded to was automated spam, picking up some relevant-looking text and posting it in lots of threads. Down with spammers! – JQ

  26. Ikonoclast
    May 12th, 2011 at 09:27 | #26

    @Chris Warren

    I am not really sure how to reply but I will try. My sentence “The final crisis exposes the manner in which endless growth capitalism is detached from the reality of biophysical limits in a closed, finite system.” clearly shows how critical I am of capitalism. My brief mention of Marx illustrates how I combine modern Biophysical Economics analysis with aspects of Marx’s analysis highlighting how the crisis of contradiction (in rich countries only) has partly passed from exploitation of labour to unsustainable exploitation of nature.

    However, I remember in all this that ideology is superstructure and the real material world and material relations are structure. Frankly, I think a true modern Marxist would be very interested in the insights of biophysical economics.

  27. Chris Warren
    May 12th, 2011 at 10:46 | #27

    The main driver of excessive resource plundering (including energy) is commercial competition particularly in maximising profits. Cheap energy, or monopolised energy, provides a competitive advantage which boosts profits. (Cheap is a relative term, the actual price can be anything).

    The main threat to our future is that OECD nations have unsustainable economies and standards of living. The rest of the world has every right to have the same standards.

    The main reality, for a sustainable climate, is a fall in living standards in OECD economies and a rise in living standards for the global majority.

    Biophysical economics misses the main point when it ruminates about some vague question:

    Where does population growth need to stop to avoid over-shoot?

    As Mark O’Connor and William J Lines have shown – we have already overshot, not as an arbitrary population level, but at the life-style that commercial competition has created, and that a few enjoy (just those in the ‘West’).

    There is no solution to any of this, and no mechanism to create one. There is no political party, or electoral space, for an alternative set of laws out of Parliament that will achieve sustainability. No candidate will ever be elected on a zero-population growth platform or on a standard of living reduction program. No economist is going to call for tariffs to restrict imports from cheap but unsustainable producers.

    This may happen, but only when it is too late. We all knew what the future would be. It was made clear by the Club of Rome in the (late?) sixties, but no political momentum could be constructed except on the fringe.

    As O’Connor [in Overloading Australia] observes – our governments and media will not take the necessary steps – they dither and deny. O’Connor, and bio-economists, just do not understand why. They just add to the fog.

  28. Ikonoclast
    May 12th, 2011 at 14:00 | #28

    @Chris Warren

    Everything you say (outside of your direct pillorying of Biophysical Economics) is correct.

    1. “The main driver of excessive resource plundering (including energy) is commercial competition particularly in maximising profits.” Correct!

    2. “The main threat to our future is that OECD nations have unsustainable economies and standards of living.” Correct! But I would add a very important second half to that sentence, “and the current attempts of China and India to emulate the OECD countries.”

    3. “… we have already overshot, not as an arbitrary population level, but at the life-style that commercial competition has created, and that a few enjoy (just those in the ‘West’).” Correct!

    4. “There is no solution to any of this, and no mechanism to create one. There is no political party, or electoral space, for an alternative set of laws out of Parliament that will achieve sustainability. No candidate will ever be elected on a zero-population growth platform or on a standard of living reduction program. ” Correct!

    5. “We all knew what the future would be. It was made clear by the Club of Rome in the (late?) sixties, but no political momentum could be constructed except on the fringe.” Correct! Except the “we” was only those people who really understood and took to heart the Club of Rome predictions.

    Within a year of reading and digesting Club of Rome, I was saying to people the world had to change and find a sustainable path. I was also predicting that the world would ignore this message (and fact) and continue on its doomed path.

    However, lumping biophysical economists (no matter what their actual ideology) in with those who add to the fog is well, I have to say this, just plain foggy ideological thinking in itself. BE is an attempt to turn certain aspects of economics (certainly not all of political economy) into a hard science. This hard science is another objective (non-ideological) tool for managing collapse or transition. Of course, if we don’t get the political economy right then no objective tools (not just BE) will work.

    Your sweeping rejection of Biophysical Economics makes no objective sense.

  29. Jim Birch
    May 12th, 2011 at 14:07 | #29

    @Ikonoclast
    I see problems with proposing available energy (exergy) as the fundamental “thing” to be “accounted”.

    In biology there is an idea of a limiting nutrient. The mass of living matter in (say) a slime pond will increase until it is using the maximum available amount of the limiting nutrient. The nutrient might be phosphorus in one situation and fixed nitrogen in another. It might be also exergy, eg, sunlight. Following any nutrient will likely yield understanding of what happing in the slime pond, but following the limiting nutrient will show you on how to immediately increase production. Indeed, if you resolve the supply problem of the limiting nutrient problem, another nutrient will become the limiting nutrient.

    What you are proposing is that exergy is the limiting nutrient for human society. I don’t deny the importance of energy but there seems no reason to presume that it is the limiting factor. Peak Oil will impact us in significant ways, but have you considered the impact of Peak Intelligence? I estimate we passed it around 50 years ago and just look around for the effects or the regression! :)

    More seriously, the claim that it’s all about exergy implies that exergy will enable happiness or satisfaction of our desires, or maximise a complex integral something-along-those-lines. Perhaps so if we were bacteria, but it doesn’t work like that for humans. You might be able to make a case that our “basic” needs – food, warmth, housing, transport, etc – are energy based, but certainly not the higher needs like security, respect, status, freedom, attractiveness, friendship, love and so on. Many of the things are basically insubstantial (or hallucinated) so only marginally affected by energy budgets. In fact, you might notice, money is a better accounting measure for these things than energy, though as we all know, a highly imperfect one.

    While humans as organisms live in, and are part of the physical world, where energy is a major determinant, humans as conscious entities, don’t. Though our consciousness is a product of (or a configuration of) our physical bodies, it is not a simple relationship. Biologically, consciousness developed to aid evolutionary fitness, not as a some kind of automatic or “logical” necessary part of being in the world even though we are constructed for it to seem like that. We is completely loaded with assumptions and and models* of reality that are skewed away from simple direct reading of the world, to fitness value. Fitness for a intra-group cooperative but individually competitive organism of about our shape, size and habits is not always about energy. As we know from Darwin’s dual theory of evolution, fitness is both about ignoring energy efficiency (sexual selection, eg, the peacock’s tail) and judiciously taking it into account (natural selection, eg, optimising nutrition sources).

    * For example, if a dense rock and piece of wood of the same weight are held in the hand the rock feels heavier. This illusion is ubiquitous and persistent. The processes that bring the sensation of weight to consciousness have been tweaked by evolution so that you unconsciously choose the object with less drag when used as a projectile. Wikipedia maintains a list of these cognitive biases that have been experimentally verified that currently runs to about a hundred entries.

  30. James Haughton
    May 12th, 2011 at 14:35 | #30

    Allow me to recommend a recent book “Classical Econophysics” by Cottrell, Cockshott, Michaelson and Wright, to all concerned. Starting from first principles, it is an elegant synthesis of the statistical physics of energy, entropy & information, and marxist macroeconomics, by people with a good publication track record (and some Chartalism makes it in, too!).

  31. Chris Warren
    May 12th, 2011 at 15:30 | #31

    We do not need any more analysis or revamping of previous analysis in new terms.

    The facts are in. We need practical policy that can be rolled-out through political and social networks and against corporate opposition.

    Australia’s average ecological footprint is 7.8 hectares and the world average is 2.7. So we only have the moral right to a population half our current load, or reduce our footprint by half down to around 3.

    We need some policy mix of: a two child policy, immigration to match emigration, different tax rates for types of energy, more reliance on electric rail, and additional similar reforms.

    We do not need new economic concepts, it is now up to politics.

    Economics, as the discipline it has been, is redundant. There is no economically ‘rational’ argument supporting the need to cut population. No economist accepts falling productivity or trade restrictions or shorter working week. But to get down to 3 hectares per capita, this may be the only practical way.

    We have been through this before. There was no economic argument that resulted in abolishing slavery – this was a political/moral movement. There was no economic argument calling for equal pay for women – this was a political/moral movement.

    If a new economics is in the wings (I see none), it will have to much much broader than biophysical themes. Tim Jackson’s “Prosperity Without Growth” is a better track to follow than Biophysical Economics.

  32. Ernestine Gross
    May 12th, 2011 at 17:21 | #32

    Ikonoclast, for what its worth or not, it seems to me biophysical economics is too young to come up with policy recommendations. I fully concur with you that economics cannot be separated from natural science and our current most general models (Arrow-Debreu type) treat the finiteness of resources (and the world) in such an abstract manner that some readers may even miss the link to the subject of concern to you. Our economic models require more than ‘input’ from scientists; joint work between (math-) economists and scientists is required – as far as I can tell.

  33. Alice
    May 12th, 2011 at 20:06 | #33

    @Alice
    yes I noticed afterwards. Too late.

  34. Alice
    May 12th, 2011 at 20:07 | #34

    @Chris Warren
    Wrong interpretation Chris.

  35. Chris O’Neill
    May 13th, 2011 at 01:42 | #35

    I was looking forward to activists like Helen Caldicott becoming honest and no longer needing to lie about nuclear energy now that Fukushima has happened. Alas, she is just another leopard that does not change its spots, lying the way she used to. It looks like when it comes to opposing nuclear energy, her attitude is that lying is OK because it’s like “lying for Jesus”.

  36. Ikonoclast
    May 13th, 2011 at 04:59 | #36

    @Chris O’Neill

    Nonsense. Monbiot is the liar.

  37. Alice
    May 13th, 2011 at 11:12 | #37

    Well I do have a funny clip at this point that perhaps Chris ONeill seriously needs for a reality check on nuclear…
    Play the Colbert report!

    http://climateprogress.org/2011/03/28/colbert-video-nuclear-reactors-safe-bank-robbing-windmills/#more-45550

  38. May 13th, 2011 at 14:30 | #38

    I had to read #35 twice before I could see that it wasn’t saying the opposite of what it was actually saying. Anyone who thinks Fukushima is a nuclear success story either hasn’t been paying attention properly or is in the pocket of the nuclear industry. Monbiot may have some other incomprehensible excuse.

  39. Alice
    May 13th, 2011 at 18:57 | #39

    @David Horton
    In the pocket David and those nuts will kill us all and leave the earth a pockmarked mess. Could happen anyway the way the nuclear industry has been piling up its filthy waste inside. If you listen to Prof solar is outpacing nuclear and something has to. Its dirty dangerous insidious and nasty industry and in a 100 years time our kids are going to look back and see the nuclear industry, with all its lies and its peddlers who persist (BNC), as nothing better than asbestos or tobacco and likely much worse.

  40. Alice
    May 13th, 2011 at 19:18 | #40

    Ok – who plagiarised who? Kruggers is out and about using the zombie analogy again

    “zombie ideas are hard to kill”

    http://krugman.blogs.nytimes.com/2011/05/11/the-doctrine-of-immaculate-crowding-out/

  41. John Quiggin
    May 13th, 2011 at 20:20 | #41

    I stole it from Krugman, I think, but he’s been very gracious about it.

  42. Ikonoclast
    May 14th, 2011 at 07:22 | #42

    @David Horton

    “Monbiot may have some other incomprehensible excuse.”

    Monbiot’s excuse could be quite comprehensible. His own site gives his bio;

    “During seven years of investigative journeys in Indonesia, Brazil and East Africa, he was shot at, beaten up by military police, shipwrecked and stung into a poisoned coma by hornets. He came back to work in Britain after being pronounced clinically dead in Lodwar General Hospital in north-western Kenya, having contracted cerebral malaria.”

    It is quite possible that George Monbiot has brain damage.

  43. Alice
    May 14th, 2011 at 08:22 | #43

    Well the more economists that fight zombie ideas the better – in my book they include the following

    Efficient and oh so clever markets – make hideous messes
    Trickle down – which trickled up
    Free markets – free for some
    Unquestioning deregulation – gave Wall street con men a get out of jail free card
    Rational self interest – there is nothing rational about self interest
    The almighty power of price signalling – to make the poor unable to pay their utility bills
    Flexibility and productivity gains from labour – you work when and how we say with no pay rise
    Inequality doesnt matter because its a “zero sum game”- it does matter when its been rising for three decades
    The amazing power of quantitative easings – they dont seem to act too fast
    The priest like status of central bank announcements – we are always close to full employment
    The ability of a computational statistic model – the govt gets to treat us all like the same family in the SIMS.
    The importance of public services being profitable – double take.
    The right to expect tax cuts ad infinitum – if you believe in that, you are beyond help.

    Peter Radford may not be an official zombie fighter but he does a pretty good job of highlighting whats wrong with zombieism..

    http://rwer.wordpress.com/2011/05/12/where-is-the-redistribution-debate/#comments

  44. May 14th, 2011 at 12:55 | #44

    I haven’t been around in quite a while to this site, honestly I’m only back for the Chartalist discussion but a quick question:

    Has the Sandpit basically replaced the weekly Monday Message Board?

  45. May 14th, 2011 at 13:03 | #45

    Nevermind I found my answer. I visited the regular features category. I really should pay closer attention to what I read. My excuse is it is the weekend.

  46. Alice
    May 16th, 2011 at 06:58 | #46

    Some of the info on this site (women for schappelle corby) is alarming to say the least. Especially when I see an executive of MQ bank get jailed for 12 years fpr moving 15million worth of cocaine through – you guessed it – Sydney airport. Shrink wrap your bags before you go on holidays. Maybe privatising the damn airport wasnt such a good idea after all (when workers and apparently executives of the owners are using innocents as drug mules).

    My god how sickening. Sorry Prof – this story needs an airing I agree with that woman. This exec of MQ bank got busted for importing 15mill worth of cocaine through Sydney airport on the same day Schappelle Corby goes through the airport. He gets 7 years, she gets life . Something wrong with this picture.

  47. Alice
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