Is Economics Doomed?

[bmaestro]

I'm an Economics major. Because of this, I'm kinda stuck on the idea that trade liberalization and economic growth are good things. They bring people out of poverty, there's empirical evidence that shows increasing national income brings increasing environmental quality and so on. Now, a friend of mine sent me this article:

http://www.rachel.org/bulletin/index.cfm?issue_ID=2483

In brief, it explains that because of the second law of thermodynamics (that entropy will increase when energy changes form), all economic activity, and a constant growth in that activity will only create more entropy, more pollution, inequality, chaos, wars... who knows what exactly.

Is this too abstract an argument for it to hold true? Or does the author, Peter Montague, have a valid point here.

If economics is a natural result of large numbers of people interacting, and theres no way around this fact (as many of us going into economics will have you believe), does it matter anyway or should we simply do what we can in the system we have to work with to fix the world's problems?

[bf_diehl]

This entropything is stale. Jeremy Rifkins book from many years ago had a run. But sane people don´t want to lay down and die just because the universe is entropic. That´s human nature. Man wants to live. And to live as well as he can for as long as he can.

Yes, his arguement is a bit abstract. It´s the type of arguement an egghead who desperatly needs to go out and have some fun would make. :p

[bf_diehl]

Here is more or less what I wanted to say. Sanders says it far better than I can.

http://the-moneychanger.com/articles...s_of_sin.phtml

[PatrickHenry]

The limits to growth don't make economics irrelevant. Doing more with less has toned down the ill effects of the second law. Example: the use of electronics to calculate math. There were mechanical calculators not very long ago (my childhood 45 years ago) but now solar card-size calcs do it faster and cheaper.

Reminds me of The Difference Engine by Gibson and Sterling about what if steam engines had powered giant mechanical calculators... but that's off topic.

It still doesn't eliminate the fact that limits may cause growth to stall. The limits of certain factors have caused all the shifts in factory production and the present-day quandry of outsourcing. The limits of investors' credibility is undermining confidence in the dollar as I write this. :eek:

But these arguments don't invalidate economics either. Uncomfortable facts instead help us to confront reality. Economics will change eventually from having a constant growth paradigm to one based upon sustainability.

Here's an article that has a similar spin to the one you posted, bmaestro:
http://www.alternet.org/envirohealth/20632/

World Wildlife Fund issued its frightening Living Planet Report, which shows that humanity continues to consume resources and destroy ecosystems at a rate that overshoots Earth's ability to produce and restore. And the gap is widening. This deficit spending cannot last; it will be brought to a halt either by self-restraint or by catastrophe.

[bmaestro]

First off, thanks for some awesome responses you guys.

There's definitely already a shift in the economic thinking towards sustainable growth, one that's based on best allocating scarce resources across time, while allowing for the economy to grow. It'll take some structural changes to really get it going, but It's definitely crucial, and its good to hear people that think the entropy argument doesn't hold much water.

The article posted by bf_diehl holds some really interesting insights. The talk about value at the end of the article, as he puts it "Not value as the world calls it, but value as God defines it." This is a really interesting idea, that if we put our money towards the things that we really care about (for example, a livable environment), we can express some of the value we put on such things.

Thanks for some great thoughts.

[bishop]

In brief, it explains that because of the second law of thermodynamics (that entropy will increase when energy changes form), all economic activity, and a constant growth in that activity will only create more entropy, more pollution, inequality, chaos, wars... who knows what exactly.

growth is never constant, therefore any assumption/theory based on constant growth is moot. also, economic activity/growth does not necessarily cause more pollution, inequality, wars, etc... the swedish economy has grown and they are one of the most equal (as far as capitalist states are concerned) nation in the world. they are also very anti-war, and donate heavily towards humanitarian charities. in other countries with a) less sympathetic leadership or b) corrupt leadership, you will see inequality and wars.. pollution is usually related to how developed a country is at the point of analysis. most advanced economies are decreasing pollution while their economies grow.

[Starboy]

Quote by: bmaestro In brief, it explains that because of the second law of thermodynamics (that entropy will increase when energy changes form), all economic activity, and a constant growth in that activity will only create more entropy, more pollution, inequality, chaos, wars... who knows what exactly. Is this too abstract an argument for it to hold true? Or does the author, Peter Montague, have a valid point here.

I don't think he does have valid point. Economics is a mechanism used by social animals to distribute material in a society. As long as there are social animals and they form societies and there is need for each animal to consume material then there will be an economy. Now if the measure of an economy is how much material it can consume then no one knows how big our economy could get. It could very well be that we are far from peaking, or we could be peaking as we post.

Starboy

[bmaestro]

Quote by: bishop growth is never constant, therefore any assumption/theory based on constant growth is moot. also, economic activity/growth does not necessarily cause more pollution, inequality, wars, etc... the swedish economy has grown and they are one of the most equal (as far as capitalist states are concerned) nation in the world. they are also very anti-war, and donate heavily towards humanitarian charities. in other countries with a) less sympathetic leadership or b) corrupt leadership, you will see inequality and wars.. pollution is usually related to how developed a country is at the point of analysis. most advanced economies are decreasing pollution while their economies grow.

To play the devil's advocate a little:

I think his point was more that the entire world experiences these consequences, not individual economies. for example, it hasn't actually been shown that there's an environmental kuznets curve for carbon dioxide (a curve that shows a decrease in pollution after a certain level of income), because no country has ever reached the projected "turn-around" point where emissions start decreasing, so this global warming gas, that affects everyone, hasn't been shown to decline after economies grow beyond a certain point.

Adittionally, there's been very little success with projects for economic growth in some sub-saharan african countries, largely because of the corruption in government, and maybe because of cultural barriers, as bf_diehl's posted article stated, value as "god" defines it, or as different cultures define it, varies, so maybe those countries are just feeling a lot of externalities from everyone elses activity, because of a different sense of what's "valuable". We have a global economy, so you can't just disregard effects on these developing counrties.

[bishop]

sure, one could talk about the global economy as if it were somehow a single entity, but doing so doesn't make it logical. economic experiences can, at best, be generalized into region-specific entities. now, these different pieces occassionally act in unison (ex. the EU and japan taking concerted action to articificially appreciate our dollar), but it still can't be simplified into a single system - one which the author's theory depends on.

we did something that was never done before with cambodia during the clinton administration. that is, we linked a trade agreement up with labor and environmental standards in exchange for a guaranteed quota for cambodian textile imports. long story short, this agreement produced substantial growth in cambodia in the short-run. but in the long-run, they are having problems funding their capital account, and their textile industry is not competitive. linking environmental rules could, possibly, only work so long as everyone was forced to develop the exact same way.. and that is never going to happen so long as the sovereign state exists.

the best way to reverse something like global warming is to develop competitve clean air technology that can be used to replace engines running on fossil fuels.. the best place for said technology to be created is in developed countries. we should be a leader in this research, but we're probably dead last amongst other developed countries. we would develop the technology, perfect it, commoditize it and then developing countries would be able to use it.


as far as africa goes, we discussed that specific issue at some length here:

How To Make it With Chicks in Africa


we do live in a global economy, but the one-size fits-all approach has already been tried (by the IMF) and has been proven time and time again to be a bad idea. when you get healthy local economies, particularly in the developing world, you end up with a healthy national economy.

(p.s. i'm also a student - going for my master's in intl economics)

[giuliano]

in my view, the growing issue of growth in emissions output is not inextricably linked to economic growth. it is linked, but there are options to decouple them.

to most conservatives, that bit sounds good. here comes the painful bit.

the US - as well as most other western countries to lesser and varying degrees - has set the standard for tearing up the earth with wanton consumption of energy, emissions and waste output.

this worked OK while everyone else was relatively poor, but now those damned chinese want to get in on the act! suddenly we are realising there just ain't enough to go around....

one of two things will happen over the coming decades:
1. we will work out that there is more scope to tear up the earth than was believed during the whole 'greenhouse years' saga
2. things will get worse, and the need for environmental conservation will only increase.

this is basically the crux of the argument between greenies and industrialists. now i will point the finger of blame at both sides:
1. industrialists (conservatives) are living in denial, scientific opinion is of a virtual consensus on that.
2. greenies (liberals) have largely thrown their weight behind the Kyoto treaty. while a step forward from a purely scientific perspective, it is highly politicised and won't win support from the US and other western countries.

we need a better solution.

[bishop]

what i've come to find is that our push for environmental/labor standards in trade agreements is primarily motivated out of protectionist concerns. it's a political win-win for the person advocating them because they win over domestic labor plus they look like they're truly concerned about improving things. cambodia is a prime example, here's another:

http://www.aaftac.org/Zoellick%20Labor%20oped.htm


i'm afraid that we won't see any compromise between industrialists and environmentalists.. especially in the current political environment we find ourselves in where one party dominates and is less interested in compromise/debate.

as far as kyoto is concerned, aren't we the only western country to oppose it?

kyoto or not, we should be taking steps away from fossil fuels. instead, we're trying to get more of them. gotta love how short-sighted people are.

[Starboy]

I don't think either viewpoint will differ much in their effects. Unless something is done about the increase of population, the actions by the greenies will only allow the carrying capacity to be increased. No species can continue to increase in population in any environment forever. Playing with consumption patterns without stoping increasing population is at best a temporary solution. At most it will buy a few hundred years. Then the collapse. The larger the population the more onerous the collapse. One could argue that as long as there is no will and ability to control population, the industrialists may be doing us a big favor. The more they limit the earths carrying capacity perhaps the better for mankinds prospects for surviving a population crunch.

Starboy

[Anniee]

[quote=bmaestro]I'm an Economics major. Because of this, I'm kinda stuck on the idea that trade liberalization and economic growth are good things. They bring people out of poverty, there's empirical evidence that shows increasing national income brings increasing environmental quality and so on. Now, a friend of mine sent me this article:

http://www.rachel.org/bulletin/index.cfm?issue_ID=2483

In brief, it explains that because of the second law of thermodynamics (that entropy will increase when energy changes form), all economic activity, and a constant growth in that activity will only create more entropy, more pollution, inequality, chaos, wars... who knows what exactly.

Is this too abstract an argument for it to hold true? Or does the author, Peter Montague, have a valid point here.[/qb]
[quote]

The laws of thermodynamics simply don't apply to economics. If one wants to argue that free trade carries the seeds of its own destruction, in that people become very prosperous and thus over time fat and lazy and thus unproductive, leading to eventual collapse, THAT case can be made. But to try to apply hard laws of physics to a discipline that is not hard science in the same way is not appropriate.

There really are no limits in the sense that there is one pie and it must be divided; expanding wealth in a free-market system is a reality. Thus the question is not, "How big a slice should I/he/we get?" but rather "How many more pies should we bake?" However, people being people, they do tend, after being prosperous through free trade for certain lengths of time, towards more socialistic economics, towards less productivity, etc. as I was saying above. Inevitably this leads to a breakdown in the economic system, just as it did in Rome (when it went from the Republic to the Empire.) I don't know if this is entirely inevitable or if people can be educated to the degree that they don't forget the lesson of the free market or what; I think it's probably inevitable. But I'm a pessimist. Its inevitability won't stop me trying to prevent that collapse through restoring freedom to the market, but at this point it's certainly an uphill battle with the ignorance of the masses.

[bmaestro]

Quote by: bishop the best way to reverse something like global warming is to develop competitve clean air technology that can be used to replace engines running on fossil fuels.. the best place for said technology to be created is in developed countries. we should be a leader in this research, but we're probably dead last amongst other developed countries. we would develop the technology, perfect it, commoditize it and then developing countries would be able to use it... ...we do live in a global economy, but the one-size fits-all approach has already been tried (by the IMF) and has been proven time and time again to be a bad idea. when you get healthy local economies, particularly in the developing world, you end up with a healthy national economy. (p.s. i'm also a student - going for my master's in intl economics)

I like the pragmatism in the way economists think in general, i find it very admirable. This is no exception. It's clear that we need feasible, realistic substitutes for petroleum-based energy. Maybe we'll find this in fusion, in wind or in solar as those energy sources become more researched. But we gotta focus on one of america's rising comparitive advantages: research... investment in human capital and high technology is the only way it can be done.

As for america, It's really backward. As bishop said in a later post, we're not only far behind many countries in this innovation, but we also haven't ratified the kyoto protocol, mostly because our economy is so oil-dependent. It's gonna come around and bite this country in the ass when we are forced to reduced our consumption of fossil fuels at great cost to our economy, where the kyoto protocol could potentially help us make this much needed transition away from oil.

The point i was trying to bring up in my moment of devil's advocacy was that we've never experienced a world where india, china, latin america, sub-saharan africa, and the entire world were "developed" in the sense of a developed country. Might it be that the physical and biological limits of this planet could prevent this utopian scenario? Or is the economist's favorite catch-all, technology, going to be enough to take care of this, so long as we develop it properly (as the US is failling to do right now).

That's all i've got for now, thanks guys, this has been really interesting.

[Livemike]

Quote by: bmaestro I'm an Economics major. Because of this, I'm kinda stuck on the idea that trade liberalization and economic growth are good things. They bring people out of poverty, there's empirical evidence that shows increasing national income brings increasing environmental quality and so on. Now, a friend of mine sent me this article: http://www.rachel.org/bulletin/index.cfm?issue_ID=2483 In brief, it explains that because of the second law of thermodynamics (that entropy will increase when energy changes form), all economic activity, and a constant growth in that activity will only create more entropy, more pollution, inequality, chaos, wars... who knows what exactly.

Did it also explain that this theory is rubbish because the second law only applies
to closed systems, which the ecnomy is not? BTW if entropy increased in an economic system inequality would _decrease_. Entropy is characterised by things being at the same level with little difference between them.

Quote by: bmaestro Is this too abstract an argument for it to hold true? Or does the author, Peter Montague, have a valid point here. If economics is a natural result of large numbers of people interacting, and theres no way around this fact (as many of us going into economics will have you believe), does it matter anyway or should we simply do what we can in the system we have to work with to fix the world's problems?

[bishop]

Might it be that the physical and biological limits of this planet could prevent this utopian scenario? Or is the economist's favorite catch-all, technology, going to be enough to take care of this, so long as we develop it properly (as the US is failling to do right now).

i don't think it's possible for china and india to develop with a dependence on oil like we (and western europe) have.. the resource will become far too expensive, and the price alone will drive them towards alternative energy sources. you could almost say that it'd be easier there, since they have no well-developed infrastructure (ex. they don't have 3 gas stations at every major intersection).

technology has been man's gift to himself.. it has always pushed us into the future. i do believe that non-oil energy will be used in the future, the only question in my mind is who will champion it, and will we have waited too long to develop it?

[SlySpy]

This is a joke. The author of that article doesn't even understand what entropy is. Entropy is the disorderdness of kinetic energy, or more commonly know is heat. What this says is that all energy transformations convert some of their energy to heat and overall in a closed system this change is irreversible. And this is all it says.
How in the world this applies to economics is beyond me. What complete nonsense.

[Black Fox]

The world may be doomed, but the theories that explain how its inhabitants interact for material gain aren't.

Anyway, the idea (as cited in the article) that economic growth must be halted to prevent further pollution, etc. is quite ludicrous. In effect, the idea is saying that we shouldn't bother trying to find better ways of doing things - this means that things will continue to be bad as they have ever been with no hope of repair of the areas that have already been polluted, for example.