Economics, as it has been taught for well over a century, is unecological. It overlooks or explains away long run natural constraints to economic growth. Nonetheless, the penetration of physics into economic thought has made the most fundamental condition of human existence unavoidable in debates about the future:
The terrestrial sphere is thermodynamically closed.
We may call the area in which we ride around the sun and fly with the solar system through the cosmos at breakneck speed the terrestrial sphere. It has a diameter of 20,000 miles. Its center is the center of the Earth. Meteors enter, space vehicles leave, hydrogen atoms escape, and dust becomes annihilated in nuclear explosions, but for all practical purposes, these events leave the weight and composition of matter fixed and unchanged in this imaginary bulb.
Modern thermodynamics distinguishes among three kinds of systems: open, closed, and isolated.
The open system exchanges both energy and matter with the exterior; the isolated does neither. Obviously, the terrestrial sphere falls between the two extremes; it is closed. It exchanges energy with the rest of the universe — most of the intercepted solar radiation is extruded at night — but not matter. Whatever we do with it — incorporating it into our bodies, feeding it into economic processes, discarding bodies, throwing away or recycling substances over and over again — our inventory of atoms remains virtually constant. The matter that we are, use and reuse, just rolls around “in the earth’s diurnal course with rocks, stones, and trees,” to quote William Wordsworth.
This undeniable fact remains disconnected from traditional economics.
Thermodynamic closeness is open to misinterpretation.
Given the practically unlimited availability of energy and Einstein’s famous discovery about the equivalence of mass and energy, resources appear to be unlimited; the terrestrial sphere seems like an inexhaustible standing reserve that can support economic growth
When thinking about mineralogical riches and production techniques (i.e., not about general relativity), mass can be equated with matter. As soon as we do that, the mirage of solar energy substituting for orderly structures vanishes. Energy can be produced from matter but the reverse is impossible in economically significant quantities. We cannot manufacture oil from heat, coal from electricity, copper from sunshine. The growth of biomass through photosynthesis also draws from the Earth’s fixed supply of matter. Photons from the yellow star do not become substance; they only facilitate the synthesis of what is already here.
Nor can the readying of energy for worldly applications take a detour around matter: Solar panels, hydroelectric and wind turbines, geothermal stations, and nuclear reactors are not built of massless ether by incorporeal seraphs and cherubs. And matter is (also) subject to the second law of thermodynamics. Some structure is always lost beyond redemption. All technological processes, whether the production of energy or material goods, reduce the ratio of economically accessible (“free”) energy to total energy (“free” plus “latent” energy) enclosed in matter. The consequences of irrevocable degradation (i.e., the transformation of low entropy structures into high entropy ones) remain with us forever.
Energy simply cannot pick up the tab for accessing or regaining material resources without further degrading matter.
The second law of thermodynamics (the entropy law) implies that energy enclosed in terrestrial structures is capable of performing a fixed amount of work and this represents a binding external constraint for human expansiveness. Unecological economics brushes this issue aside by referring to the vastness and constancy of the planet’s material resources and the energy they contain. The first law of thermodynamics (the conservation law) is made to dance center stage while the second law is forced to perform with its back to the audience in an unlit spot.
Since matter does not get lost (the conservation law guarantees that), its energy also remains constant. Mainstream economics insists that, propelled by an unquenchable thirst for lucre, science and technology will always find new ways to access the latent riches of energy buried in matter. The flawed nature of this sleight-of-hand-turned-myth will, in due time, be seen more harmful for humanity than pre-Enlightenment belief in witches.
To see our ecological reality in full light, we must keep in mind that the characterization “inaccessible” or “latent” energy (as opposed to “accessible” or “free” energy) is neither purely physical nor purely economic (i.e., expressible in terms of monetary units as in cost/benefit analysis). It is both; it is econo-physical.
Energy or matter (taken by its energy equivalent), which is less than the energy required to access it, is inaccessible. A technology that reconstitutes metal from its rust, dispersed ashes, shavings and chips is conceivable but useless if more energy is needed to accomplish the process than the energy gained from it in the form of relatively low entropy, well-structured metal.
To repeat, the entropy law does not say that latent energy is physically inaccessible — period. It says that accessing low entropy in a closed system, which is partially isolated by definition, becomes physically uneconomical for a growing proportion of the total energy locked into matter. Consequently, the ratio of energy costs to energy gains, incidental to productive activity, will have a tendency to rise over time. We are living off a lump sum of low entropy sustenance — “nature’s dowry to mankind” (Georgescu-Roegen).
Forgetfulness concerning the validity of the entropy law to matter and the lack of two-way convertibility between energy and matter (i.e., that first is no raw material for the second), combined with the abundant solar flow makes most economists shrug off entropy along these lines:
“The second law applies to energy and would limit the economy only if we lived in an isolated system. Entropy accumulation is evidently of no concern to us. Since mechanical work comes from heat and heat comes from the sun, you might as well stop worrying; our source of energy is practically unlimited.”
At this point, the defender of the foundational “no real energy constraint” tenet likes to leave the speaker’s stand with a poetic flourish and some hardy down-to-earthism:
“That bright Sol of ours will shine upon this fair Orb long enough to consider it eternity. Entropy, schmentropy — come on now! There are plenty of other, more immediate concerns; for example, how to alleviate poverty by igniting Asian tiger styled export-led economic growth in the world’s poorest countries.”
Remarkably, many of those who talk about the second law and the problem inherent in the irreversible degradation of matter fail to recognize the consequences of the practical asymmetry that hides behind the theoretical equivalence of matter and energy. By banking on solar bailouts every time the narrow constraint of matter to economic expansion plagues the global economy’s income statement, these economists are not unecological; they are semi-ecological.
To everybody’s excuse, the second law is a devilishly complex affair. It is based on empirical observations rather than on mathematical derivation. Shades of claiming its vulnerability in quantum phenomena and discussions about general relativity and string theory keep reappearing on the outer frontiers of scientific progress. As if the human mind were unable to accept the notion that nature carefully and intelligently builds systems with one hand and brutally and mercilessly demolishes them with the other. In another context, the astronomer Arthur Eddington once jokingly suggested that we should tell nature to stop behaving “in this absurd way.”
Algebraic formalism may not be the easiest route to a general acknowledgement that the terrestrial sphere’s storehouse of accessible, useful structures is terminally immune to enlargement through our closed thermodynamic system’s partially open aspect; i.e., that the Earth imports and exports vast quantities of solar energy. Following a logical thread that leads to a fallacy of composition appears more promising.
From the open subsystem’s limited point of view, entropy can decrease even in a closed system, but this perception will eventually prove to be a horrendous blunder for the whole.
Biological entities are open thermodynamic systems. They exchange both matter and energy with their surroundings with the inevitable caveat that they produce more disorder in their surroundings than the physical-biological order they create in themselves. Humans take in low-entropy, highly organized matter (e.g., apple pie á la mode), break it down, degrade it, then expel it through the gastrointestinal tract and heat radiation. Systems under human control, such as households, individual pieces of machinery, factories, and entire industries, also function as open systems.
Even nations may try to act this way. They import low entropy (e.g., energy carriers and manufactured goods) and try to ship high entropy (waste and pollution) beyond the frontiers; knowingly when, for example, nuclear material is buried in a foreign landfill; unknowingly through degrading open-access common property (e.g., the oceans and the atmosphere).
But success cannot be complete. Some of the waste and pollution will remain within the frontiers. As the limited data on “international waste trade” allow us to surmise, no nation has yet succeeded in making the rest of the world its sink hole. If, for no other reason, the damage inflicted on the “commons” haunts everybody, regardless of geographic location. Overall ecological dégringolade explains the intensifying contest among individuals, jurisdictions, businesses, and nation states to remain, to the maximum extent possible, open systems.
“Valid in particular may not be so in general,” “what is advantageous or innocuous in isolation may be lethal when considered in the aggregate” is a famous pitfall in economics. It is called the “fallacy of composition” and is usually taught at the very beginning of introductory courses. It is remarkable that unecological (and semi-ecological) economics refuses to recognize the same analogical faux pas when the pretension that “my household, my firm, my country, my biome lives in an open thermodynamic system — you deal with it” is summed to world scale.
Material inputs cycle through the global economy like nutrients through organisms. The continuous and accelerated release of relatively high entropy matter into the materially isolated planetary confines — the growing ecological indigestion — has an obvious theoretical but elusive empirical limit. Unecological economics, preoccupied with the anabolic (growth) and forgetful about the catabolic (accumulating disorder as a consequence of growth), must also have an expiration date stamped on its back, even if it is currently invisible.
By allowing debt creation to exceed the real economy’s ability to live up to expectations by a large multiple, the world economy itself — regardless of natural resource constraints — is one big, intermittently actualized fallacy of composition.
“Peak oil” — a flashing distress beacon
For many thousands of years, the Earth’s physical attributes were nonlimiting, nonbinding, external data, as if the terrestrial sphere were a land of Cockaigne, an open thermodynamic system. Oil is history’s first powerful reminder that this is a delusion.
In theory, as oil production reaches its peak (an event which, according to many analysts, has already occurred at the vicinity of 85 million barrels per day before the current recession reduced demand); the real price of this keystone resource embarks on a secular upward trend. If global real income is to continue its growth, backstop technologies will be needed not only to facilitate the exploitation of marginal reserves, but also to develop alternative sources of energy.
Neoclassical economics, with its ready-made, almost religious belief in the limitless efficacy of the “market/technology” mechanism guided by vulgar individualism, counsels that this problem will solve itself seamlessly — “just get prices right.” As is the case with any ideology whose adherents ignore drastic and irreversible changes in the conditions under which their convictions took root, this credo is also becoming more irrelevant and mistrusted every day.
Each technical civilization is characterized by a pivotal resource built into the goods destined to satisfy material needs and desires as well as into the tools used in their production. So had it been in the Stone Age and in the Bronze Age; and so it is in the age of oil, but with a major qualification. Growing entanglement with potential substitutes accompanied the historical shift in critical components — a process that has reached its zenith with the blood plasma of the modern economy.
Whether we look at oil as a source of extrasomatic energy or raw material for downstream production, it turns out to be an indispensable complement in any combination of inputs deployed in its substitution. If a calculation (using, for example, dynamic global general equilibrium, “CGE” techniques) were to estimate the total amount of oil required to substitute away from it worldwide, we would recoil in horror.
While oil dependence cannot be fully appreciated without such quantification, market prices are not pushing general consciousness in the right direction. They fail to impart the correct long-term information about the growing scarcity of nonrenewable resources, in general, as long as socioeconomic organization, institutions, policy, behavior, and ethics make us live with the expectation that affordable substitutes will always develop for them without disrupting the planet-wide accumulation of produced objects.
The ultimate horizon of neoclassical devotion is blissful indeed. It shows a shimmering rainbow of plentitude, a life of luxury — currently enjoyed mainly by members of exclusive country clubs — extended perhaps to as many as ten billion people. This fairytale is so incredibly lovely that the world is unable to secrete the antidote of scientifically-motivated common sense to dispel its absurdity.
In our epoch of macro-historical transformation, symmetry breaking, and attendant uncertainty, scribbling a downward-sloping demand curve and an upward-sloping supply curve on the blackboard as the crowning confirmation of rationality in diagnosing the oil problem is less than useless. It is the antithesis of rationality and smacks of intellectual conformism. Axiom-like forgotten assumptions behind those curves need to be rethought globally in the context of independent geological consensus with as much daring as it took Rene Descartes to examine and riposte the medieval relic of scholasticism.
To complicate matters, the increasing severity with which we encounter the tangible limits to growth inherent in oil — in combination with natural gas, other vital materials, and the environment’s waste absorption capacity — is mixed up with a host of other signs that the world, unaware of its true thermodynamic situation, has begun to violate the planet’s carrying capacity in earnest. The frenzied scramble for output maximization may be blamed for the unfolding crisis in international financial relations and the widening inequality among and within nations.
It is likely, therefore, that “oil” will become a periodic boundary condition rather than a transparent, gradually intensifying output restriction. Growth-disabling setbacks caused by high prices and supply disruptions may fade into the background for years to reappear again with a vengeance. Under these circumstances, a wide public embracement of the bone fide paradigm of ecological realism — namely that in an economic sense, homo sapiens exists in a thermodynamically strictly closed area unless and until the terrestrial sphere is opened by capturing matter from or in outer space — will be slow in coming.
Paradoxically, the more gifted the individuals are who put their talent and ambition in unecological economics, which at this writing is nearly the entire profession, the more drawn out and painful the process of recognizing that the prevalent open or tacit denial of the planet’s materially-interpreted energetic isolation impoverishes our common future will be. Nevertheless, awakening is on its way and the joke will be on the late risers.
“The Nobel laureate economics professor tells a physicist that he has made a great discovery . . .”
Nineteenth century political economists believed that the exhaustion of natural resources, land chief among them, would terminate demographic and economic expansion and lead mankind to a dismal steady state. According to contemporary economic opinion, nineteenth century thinkers held the view for the long run that we, having witnessed the power of entrepreneurship and the marvels of science and engineering during the twentieth and early twenty-first centuries, consider valid only for the short run. It seems, however, that the wisdom of our times also has its limits. It may have simply confused “long run” with “forever.” This is a bad error of judgment, which, although it remains largely unarticulated, is gaining attention.
When the chronicle of the crisis of illusions and the historic epiphany now in waiting is taught in schools half a century down the corridors of time, the idea that the Earth’s material resources can be recycled indefinitely in support of unbroken economic growth without fatally undermining the planet’s functional integrity will pass for a deep-end utopian dream — at best. It may be derided as an unecological economics-fueled, socio-culturally ingrained, collective suspension of disbelief in “perpetual motion machines” — an apparently inexhaustible source of side-splitting laughter in patent offices around the world.
