Do economists believe in the Second Law of Thermodynamics?
March 27, 2011 2:06 PM   Subscribe

Sometime in the 80's, there was a survey of economists by a group of researchers in the US that suggested that many (? some? all?) economists discounted some basic ideas about the world, for example that energy and resources were limited by physical constraints. I'm looking for links/discussion about that survey, or subsequent work. I haven't had any luck with either Google or the stack of articles in the basement.
posted by sneebler to Science & Nature (10 answers total) 3 users marked this as a favorite
Might you be talking about the Simon-Erlich Wager?
posted by Cool Papa Bell at 2:24 PM on March 27, 2011

You might be misremembering (or seeing a misinterpretation) of the notion that many economists don't believe we'll run out of natural resources. The argument is that, while X resource is physically finite, we aren't really going to use all of it because there are alternatives because of the rising price of X due to increasing relatively scarcity.

Consider whale oil. We used it in the 19th Century as relatively cheap lighting fuel, compared to other alternatives at the time. If you calculated how many whales would be required to provide lighting in, say, 21st Century New York, you probably need more whales than have ever lived. But we haven't gotten to that point, because we discovered (and developed technology to use) gas and oil for lighting. So, the rising price of a resource (in this case, whales become rare and whaling ships must go further afield to find them) encourages the use of alternatives. You can make similar arguments for 21st Century technology, where a relatively high price of gasoline encourages the development of, say, electric cars.

The other effect of a rise in the price of a resource is to encourage better technology in extracting that resource. Again, oil is a very good example, as our extraction tech is far, far greater than it was even 20 years ago. While the amount of oil in the world is finite, the economically valuable supply of oil is far less than that, and this economically valuable supply will change depending on the price and the available technology (e.g., $100/barrel oil means we can economically extract oil from shale rock, and we will invest in technology that will make that activity cheaper; we wouldn't do it if oil were $20/barrel).

Matt Ridley's TED talk touches on similar issues, and his book, The Rational Optimist, goes more deeply into this idea. The main point, not in that boingboing article, is the notion that "if X trend continues, we will run out of R and die" is a naive-at-best statement; it depends on "if X continues", whereas, over history, people have stopped doing X (which depends on R) and instead did Y (which depends on S). Sometime in the future, people will say that "if Y continues, we will run out of S and die", etc.
posted by chengjih at 3:26 PM on March 27, 2011 [1 favorite]

Best answer: Ecological Economics is the googling term you're looking for. Hermann Daly's book is generally considered the bible of the movement.

The idea is that traditional economic models ignore the fact that there are natural limits on energy inputs in our eco- and economic systems. They also ignore the externalities that come from their overuse (overfishing, climate change, smog, clear cut forests, etc). Without considering these very two very real issues, the models don't accurately address the long term economic stability of society.

You might be having trouble with your searches because the academics and economists who are noting the fact that the second law of thermodynamics has been ignored are doing so because they have a more comprehensive theory to share. i.e. the focus of the papers is not generally on the absences in past analytical thinking, but on improvements which reference the absences, if that makes sense.
posted by paddingtonb at 3:32 PM on March 27, 2011 [1 favorite]

chengjil, you bring up a lot of really good points, however, the issue you're missing is that production will always require more of an energy input than the final product will contain. While conservation of energy tells us that energy can never actually be lost, in practice (in production of material goods, for example), lots of embedded energy will be transformed into kinetic energy, which we haven't figured out a way to harness; it's essentially useless from a manufacturing standpoint.

So, while we'll always be able to innovate new ways to create goods, we live in a finite system (a planet) where the only energy input is disparate solar energy. Yes, it does add some energy to the system, but not nearly enough to meet our current demand, not by a long shot. Meanwhile, we're turning lots of embedded energy (whale blubber, natural gas, wood, etc.) into kinetic energy much more quickly than we're coming up with replacements.

Yes, we'll innovate til the cows come home, but at current production rates, the 2nd law of thermodynamics tells us that we're going to eventually run out of embedded energy because we're in a finite system.
posted by paddingtonb at 3:46 PM on March 27, 2011

I'm not sure if it relates, but economists evaluating classical markets do use a number of assumptions which are obviously not applicable to the real world. Perfect knowledge and the existence an infinite number of buyers and sellers of any good are the first to spring to mind. Both of these would violate the laws of thermodynamics.
posted by pompomtom at 3:49 PM on March 27, 2011

Paddingtonb, I fully agree that we live in a finite system, but that doesn't mean that our economic limits are anywhere close to known physical limits. To take the extreme science fiction example, we're nowhere near to building a Dyson Sphere.

Matt Ridley actually brings up the same point as you do: a lot of our current industrial economy is based on exploiting (solar) energy that was stored up eons ago. His take on the matter is much more optimistic: all that stored energy in coal, oil, etc., likely makes us rich enough to reach an industrial level at which we can come up with alternatives: greater efficiency, more solar, more nuclear, more geothermal. The relative price of fossil fuels will go up; that price signal encourages conservation and efficiency, and the search for alternatives.
posted by chengjih at 4:22 PM on March 27, 2011

chengjih, good point. I wouldn't call my perspective pessimistic (I work full time on environmental/social business innovation so I actually feel pretty optimistic about our ability to turn things around with the power of the business sector).

Rather, I think that efficiency and conservation are practical, economically prudent and pro-business because the price signal is obviously coming. They're probably cheaper and easier than technologically fancy solutions, but I'll take those too, especially if they deal with the externalities like climate change, water and air pollution.

Thanks for challenging me to think critically about my perspective.
posted by paddingtonb at 4:38 PM on March 27, 2011

As an engineer turned economist, yes - I believe in physics. I also believe that yes, resource scarcity does force a change in behavior, whether that be the future short term price rise asociated with post-peak oil or the parallel decrease in productional costs of solid state hydrogen cells. Whether an individual economy suffers through that transition depends on how fast the new technology is embraced, and how dependent (deversified) that portion of the economy is. There are other contributing factors outside of that narrow scope that need to be considered. For some, an extemely debt laden country may represent an economy that cannot make that transition easily, since at some point the debt servicing will act as at least a dampener on growth. These other factors may have larger coefficients, or coefficients which only are pertinent for a certain period of time.

Economic models can't explain the effect of the end of one resource on another, generally because the resource probably had no non-existent points over its life. The period before the resource was harvested, is probably irrelevant, as a large amount of external infrastucture changes probably occured in the same time, making the reference impossible.

An economist, starts to try to untangle this whole mess, and realiizes that there are some things that can be known, and some things just can't be known. We can observe them, but to actually measure the significance of the ripple that one small change of a resource time has on the overall economy may just be an un-teasable part. And that isn't an economist trying to be lazy, that's one saying that the cost benefit of making that call is lost.

Will we be forced to swap resources? Yes. Will it be the end of industry as we no it? No, other resources will take the place. That last concept, I hope, everyone would look at and understand. It is about the only positive thought that I have come to believe since I started in heavy with the dismal science.
posted by Nanukthedog at 7:03 PM on March 27, 2011

Response by poster: Thanks! I probably am looking for the Hermann Daly book, but the discussion is interesting too. I have to go to bed now.
posted by sneebler at 9:32 PM on March 27, 2011

You may want to check out the work of Robert Ayers, who has written extensively on the implications of thermodynamics for resource consumption.

If you have journal database access, the journal Ecological Economics is full of these discussions.
posted by just_ducky at 10:00 PM on March 27, 2011

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