Sunday, April 22, 2012

Exponential Economist Meets Finite Physicist: My Comments on the Limits to Growth

This is my response to the recent post by UCSD physicist Tom Murphy, in which he questions an economist about the physical limits of energy consumption and its implications for economic growth. Following Murphy, I'll respond in four acts.

Act I: The Premise
My first reaction is that asking an economist about the physical limits of growth is like asking a biologist about how the genus Bathyteuthis affects the Earth's gravitational field.

We're all familiar with the hierarchy of science - physics, chemistry, biology, [followed by the social sciences: psychology, anthropology, economics, etc. ] - that overlap yet fundamentally operate at completely different scales. The question Murphy poses violates the scale of economics, so its no wonder the economist veers into fantasy and Matrixland.

Even physics makes infinite approximations. Imagine you're an amoeba sitting on a charged copper sheet, and are trying to calculate the magnitude of the surrounding electric field. Then you might approximate the sheet by an infinite plane, even though clearly it doesn't go on forever.

Of course, the reason economics is not a real science (for now at least) is that 1) it makes strong assumptions that completely violate the laws of the real sciences, and 2) most trained economists are blind to these violations. I can't think of a similar example from biology.

I applaud all efforts to reveal the blind spots in economics, and I think more of these conversations need to occur. Among academic disciplines, economics is a dominant ideology that governs world affairs. So it behooves economists and non-economists alike to know where economic thinking fails.

Economics in fact has implications for many other disciplines - physics, psychology, ethics, ecology, to name a few. We must take responsibility for these implications, but currently we're are far too ignorant and far too insular.

[Side note: Although I found the film overall a little too sensational, what I liked most about the recent documentary Inside Job was that it revealed economists' utter dumbfoundedness at the idea of ethical conflicts of interest between academic and consulting work - and has sparked substantial debate within the profession.]

Act II: The Content
What I found most interesting from the post was the graph of total US energy consumption since 1650, showing a consistent 2.9% annual growth in total consumption. My initial reaction to the idea of limits to growth was the one the economist discussed during Act Two - that economic growth need not coincide with growth in inputs, like energy.

The figure certainly refutes this point. But we're still in the age (albeit perhaps the last vestige) of energy abundance. Once we do hit the limits of energy availability on earth, market forces will make it expensive, and our economic lives will adapt to the new prices.

This adaptation is not necessarily a physical increase in efficiency (i.e. extracting more energy output per unit of resource input), but an economic one. Right now the market doesn't reward ways of life that conserve energy, but it will in an energy-scarce future. We'll learn to live energy-frugally, because we won't be able to afford energy.

Whether or not this is "real" growth, I'm not sure. But I think one fundamental mistake the physicist makes is assuming that inflation in energy prices necessarily translates into overall inflation. Again, the graph is compelling, but not decisive. Perhaps energy is sine qua non to growth, but this is an assertion that needs careful examination and proof.

Of course, the above scenario of market adjustment to scarcer energy relies on the fact that the market can smoothly incorporate these changes. Our current ignorance and lack of planning for future energy scarcity increase the likelihood of non-market adjustments, like widespread riots, famine, government overthrow, etc. The economics of growth doesn't take into account these possibilities when comparing policy choices. Maybe it should.

Act III: Unanswered Questions
There were undoubtedly some incisive and under-appreciated points in the post about the physical limits of energy. But the debate feels a bit like a sideshow.

Ever since I took my first economics class, I've also harbored questions about growth - why is it necessary, how can we assume it can go on forever, etc. And what Murphy's post doesn't get into at all is why economists feel we need growth. By neglecting this crucial point, the post reminded me a bit of my father (a mathematician), who once opined that wind turbines were dangerous because they might steal all of the Earth's rotational energy. While theoretically valid, my dad missed the point and lacked a sense of scale.

Economic modeling follows the path of least resistance, so we must ask why the assumption of growth is so important that we leave physics by the wayside. In all my thinking, I still haven't arrived at a good answer for this.

My best inkling is that the need for growth is related to employment. With continuing innovation in output/worker, the employment base shrinks without growth. Then the problem becomes one of allocation.

In fantasy, we could live in a world where robots produced everything and the population would be free to pursue whatever it wanted on a fixed ration of output (see the Work Less Party). But this would require  non-market systems of allocation that we don't yet know how to implement.

So that leaves us stuck - we either go for growth (physics and the environment be damned), or suffer frightening unemployment and apocalypse. That's the common wisdom anyway.

But might there not be a third way, if we gather up the courage to confront our choices?

Act IV: The Implications
Back to the idea of scale, economists operate at the scale of decades. We don't yet know how to think on the scale of centuries, during which our approximation of growth truly fails (so we hope). Like politicians, we are prone to short-term thinking - putting out fires instead of preventing future ones. Right now our strategy is to deal with present problems like unemployment and poverty by encouraging growth, while sticking our heads in the sand on the limitations of our approach.

Economists - and human beings more generally - are poor decision-makers when it comes to trading off comfort and convenience today vs. benefits in the future. That's why on climate change we've chosen to plow full steam ahead off the side of a cliff instead of making sensible and prudent changes at a fraction of the cost of the global financial crisis.

So sadly, on the topic of the limits of growth, we're set to continue on a path that needlessly exhausts our resources instead of planning for a steady future. What evidence do I have for this dismal prognosis?

Consider the example of the oceans. The history of commercial fisheries illustrates both the physicist's and economist's perspectives. A 2003 paper in Nature documents the stocks of many large predatory fish have collapsed during the last century due to overfishing, and that overall stocks are only at 10% of pre-industrial levels. Fish are a renewable - yet depletable - resource, and we choose to overfish instead of limiting our catch to allow for replenishment of the stocks.

World fish stocks continue to decline - and the average size of fish has declined over time as we fish down the food chain. YET, fish are still available cheaply and more abundantly than ever in the supermarket! How can this be? This illustrates the economist's point that the market quickly and ingeniously adapts to find substitutes for scarce resources, with little notice from consumers that cod is now replaced by Patagonian Toothfish.

A physicist might point out that someday soon there will be no edible fish left in the ocean, and shouldn't we worry about the limits to fish. An economist might shrug, and respond that after we eat all their natural predators, shrimp will be in abudance.


Anonymous said...

The answer to your unanswered question, why economics needs growth to enable every one to get a share has been given time and time again, and it has been buried time and time again. It lies in the private property of land (natural resources included). Henry George in his brilliant book "Progress and Poverty", written in the 19th century, has formulated problem and remedy best. There is indeed a whole school of economic thought dedicated to it, the physiocrats. It is also not difficult to understand why the implementation of Georges ideas has never happened on a grand scale.
There surely is a third way, but the power structure we have does not allow for it.

Mark Bahner said...

I posted my response to Tom Murphy's post today:

Min said...

"In fantasy, we could live in a world where robots produced everything and the population would be free to pursue whatever it wanted on a fixed ration of output (see the Work Less Party). But this would require non-market systems of allocation that we don't yet know how to implement.

"So that leaves us stuck - we either go for growth (physics and the environment be damned), or suffer frightening unemployment and apocalypse. That's the common wisdom anyway.

"But might there not be a third way, if we gather up the courage to confront our choices?"

The fantasy you talk about is similar to the fantasy of Benjamin Franklin and others at the dawn of the industrial revolution. In terms of the productivity of machines, we live in Franklin's fantasy world, except that in social terms we do not. In the developed world we live in Dickens's world of penury in the midst of plenty. At the same time we in the developed world are over-consuming and barreling along an unsustainable path.

Indeed, we need to develop a third way, one that does not simply rely upon market allocation, because unfettered markets tend to extremes of wealth and poverty. If we do not experiment with alternatives, we will probably end up jerry-rigging something. Our current trend is toward a caste society, and we know that they can exist for centuries, if not millennia. Is that the future we want?