Friday, September 27, 2019

Why use physics to describe economics?

Do you mistrust the predictions of mainstream macroeconomic growth models and reject the policy prescriptions of their practitioners? Many do. 

Is this fair? And what would we do instead?

How about using physics ? Certainly as a field it has a pretty good track-record for describing nature, at least as an alternative to religion and magic.  The big thing in physics as a field or any other science is that it demands falsifiable hypotheses rather than the opinion or Ivy league pedigree of its practitioners. Results should enable useful predictions, those that offer the potential for robust long-range forecasts subject to physical constraints. 

On the other hand, the scientific method is certainly not at the core of modern macroeconomics, probably because economist's are lured by influencing public policy, or they don't believe that social systems are physical systems. Making mathematical models to describe reality is common in macroeconomics. No problem there. Math is a useful tool. And quantifying things is good. But making mathematical models that can't be falsified is terrible! Neoclassical economic models employ equations for the GDP, or “production functions”, that are dimensionally inconsistent formulae that can be “tuned” to match observations of labor and capital. And they always are. It is not possible to falsify these moving theoretical targets because they can always be made “right” by adding layers of social complexity or by tweaking the production function exponents. If conditions change and the formula no longer works, economists just tune again and call it a “structural break”! This is strange,  at least if the goal is to understand how things work rather than show off one's mathematical aptitude. It would be abhorrent to imagine a basic physics equation being adjusted as time progresses or for the situation at hand. The speed of light in a vacuum doesn’t get to be different for you than for me or for last year versus this year.

Perhaps economics and science can be reconciled. It would be nice to think so. Unfortunately, I don’t think this is possible without some important adjustments. Mainstream economic models take the approach that human labor is distinct from physical capital. Labor uses capital for production. Some portion of production is short-term “consumption” of things like food and entertainment, that contributes nothing to the future. The other portion is a long-term “investment” in physical capital that enables labor to produce more in the future depending on labor productivity. The feedback loop of this "virtuous cycle" forms the basis of unconstrained long-run economic growth. The division between long-term investment and short-term consumption is set at the time of one year. In this model if you store a bottle of wine in your cellar for years it adds to capital. If you drink it next week it counts as consumption and does nothing for growth.

But from the perspective of physics this all seems a bit ad hoc. Surely, in a finite world nothing can grow forever. And why prescribe the division between consumption and investment at one year and not some other time? Other than paying annual taxes to the IRS on April 15, there's nothing inherently special about the frequency with which the high density rock we call Earth revolves about the larger accumulation of hydrogen and helium we call the Sun, especially in a non-agricultural economy. And what makes labor so distinctive from physical capital? People are not all that special in the universe, at least there’s nothing in the fundamental equations of physics that says “people” or "labor".

Thinking about the economy more generally, it might make most sense to make the following adjustments:

  1. Subsume people into a very general physical representation capital that includes all components of civilization. 
  2. Remove the one-year separation between consumption and investment
  3. Link consumption to physical resources like energy and raw materials
Admittedly, not treating people as special might seem strange at first, but let’s go with the possibility that our egocentrism doesn’t really matter.  Our personal feelings aside, we are just sacks of matter that enable electrical and fluid flows down potential gradients. It sure has been hard for neuroscientists to find any evidence for free will; so perhaps people are really no different than any other physical system in civilization, acting as conduits for energetic and material flows just like communications networks or roads. Then, the consumption/investment dichotomy of traditional models disappears. Everything that lasts, including us, is an investment in the future. Equally, everything to last must consume resources to be maintained.

The model I’ve introduced is based on the very simple premise that accumulated economic production of everything in civilization must be sustained by a proportionate amount of global primary energy consumption. Turn off all the power and civilization is worth nothing; and the more we accumulate the more power is required for sustenance. 

This is a hypothesis that might seem crazy to a traditional economist. But crucially it is an assumption that is falsifiable. A test can be set up that could potentially show it to be wrong. Making this test however, it turns out that it is a premise that is supported by available statistics: 7.1 ± 0.1 milliwatts of continuous power consumption has been required to sustain the historically accumulated global production associated with every inflation-adjusted 2005 dollar in every year statistics have been available since 1970.

Consumption versus production
From an accounting point of view it makes a lot of sense for economists to selectively subtract short-term household and government consumption from economic output (or GDP) to obtain a long-term capital investment that adds to previously accumulated capital. Capital investments are then independent and additive; it is assumed that the whole is the sum of its parts. If saving an ounce of gold - an item that lasts - adds $1000 then it seems obvious that saving two ounces adds $2000. 

But a little added thought suggests it’s not quite so straight-forward. Neither labor nor physical capital means anything without the other. “No man is an island, Entire of itself. Each is a piece of the continent, A part of the main...” An ounce of gold has no intrinsic worth as it’s just a rock. But it has a great track record of providing value as a collectively appreciated part of society. Someone with lots of gold must be a very important person because they got the gold and others didn't. Value appears to lie in access not the thing itself.

Viewed physically, gold as a tool in society’s banking system networks, which in turn are maintained by the accumulated knowledge capital of bankers. But if the ounce of gold was left abandoned and forgotten in the middle of the desert it would currently be worthless. It only has value as part of a larger society.

And if everyone else tried to sell their gold for $1000, the value per ounce would fall, including the ounce you kept . Value, therefore, does not lie in individual “things” or people by themselves. True value lies in a larger global network and the role we and our structures play in it. Physiological, social, computer, communication, and transportation networks are all part of the living organism we call civilization. Capital value is not strictly additive because no element is completely independent of any other.

And this "super-organism" must continuously consume energy and raw materials to survive. Without energy consumption, there is no investment that will be worth anything. We would all be dead if nothing else. So there is no really legitimate separation of short-term consumption and long-term investments in capital. because each requires the other. And individually the value of any element must compete with all others as constrained by the amount of energy and raw material consumption that is possible.

For contrast with our current capitalist state, it helps to think of a subsistence society at near steady-state where nothing can be stored for the future: food rots quickly; the society maintains a more-or-less fixed population; and in its purest form there is no currency and no GDP. Even though the society has to consume food, the consumption is not part of any measurable economic output that contributes to growth. 

I have personally experienced something like a subsistence society working as a Science, Math, and Physics teacher for a couple years in the beautiful, remote tropical South Pacific island group of Ha’apai, Tonga. Even though there was a little money to go around for luxury items, it was almost totally impossible to buy traditional foods like coconuts, taro, and octopus that anyone could access. Only revolting imported “specialties” like canned beef and mutton flaps were readily found for sale in small shops. Any given root crop was more or less available from whomever had it; everyone except a handful of foreigners had direct or indirect access to a fixed, finite quantity of fertile land where they could grow throughout the year -- if you didn’t have a yam, get your own or ask (or even take). The local mantra was “Ha’apai is good; food is free”. 

In an expanding civilization, matters are rather different, as essential to expansion is the idea that products can be acquired and stored for the future. Food is treated quite differently as it is a real commodity -- in most homes we have a fridge, freezer, and larder. Owning money gives us a right to buy access to something, whether a house or a tasty sandwich. We tend to like sandwiches, and buying access to a sandwich is an investment in our well-being.  If we're really really hungry, in fact it's probably the only investment we can possibly think of. The sandwich offers the future potential - no matter how near in time - to be content, better able to interact with others, and more productive in our jobs. The wonderfully consumptive process of actually eating the energy and raw materials in the bread, mayo, lettuce, ham and cheese provides fuel for our bodies and the lingering memory of sublime satisfaction that spurs future purchase of even nicer sandwiches. Nothing about the purchase of food is “consumed” in a way that becomes totally lost to the past as expressed in standard economic models.

So all financial transactions, whether for a sandwich or a bar of gold, that count in the GDP are really just monetary expressions of small, instantaneous increments in the growth of civilization’s networks of connection and access. Certainly some are larger than others, but we might expect that the accumulated GDP, adjusting for inflation, is a representation of the growth of these networks, and that the total networks must be sustained by a corresponding consumption rate of energy. Total global capital can be tallied as historically accumulated GDP  (units currency), or more strictly, as the time integral of every little differential increment in productivity (units currency per time).  Even the most ancient inflation-adjusted economic production has to some degree sustained us through to our activities today. Subsistence cavemen did nothing for our wealth today -- we should expect the GDP was zero. But growing cavemen societies, if they persisted, did, by creating fire and building language and social structures.

This approach, leads to the rather wonderful result that 7.1 ± 0.1 milliwatts of continuous power consumption is required to sustain the worth associated with every inflation-adjusted 2005 dollar of civilization, year after year after year. Simply put, consumption of energy and raw materials sustains all of civilization’s previously accumulated value as calculated by the summation of all prior economic production adjusted for inflation. This value or wealth must be sustained by a proportionate amount of energy consumption.

And with this we're off to the races. Economics can now be moved from the nebulous world of mathematical confabulation and Ivy league pedigree to a problem in thermodynamics. It may remain difficult, with much to be understood about such key problems as wealth distributions. But things can be readily said about e.g. population growth, long-run economic growth, and the fallacy of appealing to energy efficiency to solve climate change. There lies a tested physical foundation with which to attach such problems, one that rests on physical constraints and can be tested with observations like any other true science.

Friday, June 21, 2019

Population growth is not a driver of climate change

It seems so easy to blame excess population for our planet’s woes. It could hardly appear more straightforward: people consume resources; more people means more consumption; if we have any prayer of reducing our collective damages to the environment, we must make fewer babies.

There’s a well-known equation first devised in 1970 by John Holdren and Paul Ehrlich called the IPAT identity: 

Impact = Population x Affluence x Technology

The environmental impact of society is proportional to our population, our GDP per person (affluence), and the environmental damages per unit of GDP (technology).

On the face of it, the IPAT identity is totally clear, and dimensionally irrefutable. An increasingly affluent and growing population is going to have an increasing impact on its environment. 

A step further is the Kaya Identity, which looks specifically at the impact from carbon dioxide emissions, and breaks down Technology into two components: energy efficiency measured as annual energy consumption per annual GDP and carbon intensity measured as CO2 emissions per Energy:

Emissions = Population x (GDP/Population) x (Energy/GDP) x (CO2/Energy)

Again, at least on the face of it, nothing is wrong with this expression. Modifying any of population, affluence, energy efficiency and carbon intensity, will allow us to help the environment: we can maintain our affluence and reduce carbon dioxide emissions provided that we invest in energy efficiency, switch to renewables, and support birth control. 

What’s not to like? Certainly, countless politicians and scientists have argued that with sufficient political will, we can accomplish these combined goals to save our planet while supporting our economy.

The devil is that the Kaya and IPAT identities are constructed so that affluence, energy efficiency and population can be seen as being largely independent of one another, making it seem possible to tweak one without affecting the other.

In fact, each of the ingredients of the Kaya and IPAT identities can be better seen as symptoms not causes. One perspective is that, broadly put, civilization is a heat engine. What this means is that all of the internal circulations defining what we do in civilization are driven by a consumption of energy, mostly fossil, and a dissipation of waste heat, including carbon dioxide as a by-product. From this perspective, only about 1/20th of the total caloric consumption by civilization as a whole is due to the caloric consumption of people themselves. The remainder is used to support the appetites of everything else, like the energy required for industry, transportation, and communications. Globally averaged, people have each about 20 energy slaves working around the clock to help them accomplish all of civilization’s tasks. 

People themselves are a relatively small proportion of the world’s total resource consumption. Imagine someone visiting Earth for the first time, knowing nothing ahead of time about the planet or its inhabitants. The visitor would witness all the marvelous phenomena of the earth, atmosphere and oceans. Maybe they would even have a special sensor they use to detect massive plumes of heat, particulates, carbon monoxide and carbon dioxide emitted into the atmosphere from all over the planet, some from small stationary sources and others moving quickly across the oceans and land. Almost all would come from objects made of steel. The visitor would probably fail to perceive people and conclude they are insignificant relative to civilization’s machinery

You as a staunchly proud human might tell the visitor that they are missing important context. It’s people who are running the machines not the other way round, and that the measured environmental impacts are proportional to population. 

But this perspective is based on a belief that people are independent drivers of environmental impacts, that make and grow babies independent of environmental conditions, and affect the environment proportionately. 

As a counterweight to this perspective, in an article I wrote in 2009, I presented an alternative to the IPAT identity. Using some physics to derive Eq. 12, it was shown that: 

Population growth rate + Affluence growth rate = λ x Energy efficiency + Energy Efficiency growth rate

Where the symbol λ had a constant value of 0.22 exajoules per year per year 2005 trillion USD. For example, for the period 1970 to 2015, plugging numbers into the equation gives the following for the annual growth rate of each of the terms:

1.5% + 1.5% = 0.22 x 0.089 x 100% + 1.0%

where the value 0.089 has units of inflation-adjusted year 2005 trillion USD per exajoule. Simplifying: 

1.5% + 1.5% = 2.0% + 1.0%


           3.0%  = 3.0%

Both sides of the equation add up to 3.0% per year. This is pretty cool. A simple equation for the growth of humanity derived using physics rather than economics agrees surprisingly well with what is actually observed.

But what does it all mean? The upshot is that being energy efficient, as on the right hand side of the equation, is what enables civilization as a whole (not at just the national level) to increase its population and affluence, as on the left hand side of the equation. If we become more energy efficient, we accelerate growth of population and affluence, and increase our environment impact. It is not the reverse! 

Moreover, because the first term on the right hand side of the equation -- current energy efficiency -- reflects the history of prior energy efficiency gains, and we cannot erase the past, past advances in energy efficiency are effectively the single parameter that determines current growth of population and affluence.

Intellectually, this is a really nice simplification that removes some of the uncertainty in making long-run forecasts of population and affluence. On the other hand, it might seem totally counter-intuitive. Understandably, most would assume that we can increase energy efficiency independent of population and affluence; and more importantly, increasing energy efficiency will reduce our overall environmental impact. Let’s buy a Prius! 

But this comes back to the previous point that the components of the Kaya and IPAT identities are coupled symptoms of something more important. To understand how each IPAT component is linked through the equation above, it is necessary to understand a bit about the very special nature of how a self-organizing civilization operates like a heat engine

The heat engine in your car is of fixed size. Civilization differs because it can grow. It grows because it is able to successfully use energy to incorporate raw materials from its environment into its internal structure.

If civilization is energy efficient, then it is able to rapidly incorporate raw materials into its structure. Energy efficient civilizations are productive and grow quickly. There are two ways we can witness this material growth. One is that population increases: we ourselves are constructed from raw materials. The other is that we increase the amount of our stuff, or our economic affluence.  

With greater efficiency, we can have faster growth, and more of everything, more people included. Interestingly, as shown above, increased energy efficiency appears to increase population and affluence in roughly equal parts, both 1.5% per year. 

So, does population growth matter? Well, I think it’s the wrong question. Instead it makes more sense to ponder the external forces that control the energy efficiency of civilization as a whole, and how efficiently it can use energy resources to incorporate raw materials from the environment.  

Waves of accelerated discovery and exploitation of coal and oil that began around 1880 and 1950 preceded unprecedented explosions in population and affluence. Looking ahead, many question whether we will sustain continued resource discovery. If we can’t, what does a declining civilization look like? If we can, what is the end game when there are inevitably accelerating negative impacts on the environment?

Tuesday, April 9, 2019

Can we use physics to forecast long run global economic growth?

One of the more challenging problems in physics is the evolution of complex systems. Atmospheric scientists study phenomena ranging in scale from those of molecules to the size of the planet, and struggle with integrating the full gamut of interacting forces into a usefully comprehensive whole.

The world’s economy could easily be another example. Individual actions have become intertwined with global trade agreements. Economic forces seem uniquely human, subject to the vagaries of choices of consumers and political and business leaders, and almost impossible to predict with any degree of accuracy.

Yet, humanity is still part of the physical universe. An immense body of work in the social sciences demonstrates that - taken in aggregate - we obey the same mathematical distributions seen in many well-established physical phenomena, such as power-laws for income distributions, and negative exponentials (or Boltzmann distributions) for the proximity and number in our social circles.

Perhaps well-established tools from physics could be used to help address questions about where the economy is headed. Forecasting is well-developed in the geosciences for prediction of such complex phenomena as earthquakes, the wind, and tides. Can similar tools be used to help determine our financial future?

To be sure, this line of thought is not exactly new. Practitioners of a sub-field called econophysics  invoke physical analogs to explain market movements.

My own approach is rather different. Like many physicists, I believe a first approach to any complex problem is to step back as far as possible, to constrain the big picture first before getting bogged down in any details.

Looking at the whole, one technique is to imagine successive degrees or "moments" of complexity that determine current rates of change, each with its own tendency to persist. For example, things stay still - except when they are perturbed by velocity, which is constant - except where it is perturbed by acceleration, which is constant, except where it is perturbed by the jerk, and so on.

Or, consider this beautiful woodcut. We might ask ourselves which way is the boat in the foreground going? Up, down, or staying still? To me, Hokusai conveys the artistic sense that the oarsmen in the foreground are moving upward towards the crest of a wave.

Maybe you see something different. And more scientifically, we cannot know:  all we see is a snapshot in time. Without additional information, assuming the boat stays in roughly the same place would be as safe a guess as any.

This "stationarity" is what we might call "Persistence", or steady-state in the "zeroth" moment. Naturally, we'd hope to do better by going to higher order moments requiring perhaps that we ask the artist in his grave is where the boat was a few moments earlier. Then we might sensibly suppose that the boat continues its upward or downward trend.

As a means for making a forecast of the boat’s position, we might call this technique “Persistence in Trends” or steady-state in the first moment. We could feel confident that such a forecast would do better than assuming a model of mere “Persistence” that does not consider that the boats moves at all.

And more sensibly, we know that the boat cannot continue moving up or down indefinitely. To account for this, we would try to go further to the second or even higher moments. For this we might look at other waves for a guide or use a model of the fluid mechanics of an ocean wave to predict how far and fast a wave rises before it falls or breaks.

Economic hindcasts and Skill Scores

My contention is that we can do something similar with long-term predictions of the global economy, by using thermodynamically-based expressions for how economic systems respond to external forces such as resource discovery and depletion to offer robust, physically-constrained economic forecasts.

It can be (has been) argued that it's pretty arrogant or nuts to imagine that something so complicated as humanity is predicable. But in its defense, it simplifies the problem to a level that it should at least be testable.

One way to test any prognostic model framework is to perform what in meteorological forecasting is called “hindcasting” : How well can a deterministic model predict present conditions initialized with the conditions observed at some point in the past? Model accuracy is evaluated using a “Skill Score”, which expresses how well the model hindcast reproduces current conditions relative to some Reference Model that requires zero skill.

In the Hokusai woodblock, a zero skill Reference Model of “Persistence” would assume the boat stays still; “Persistence in Trends” would assume the boat continues on its existing trajectory. A model based on ocean physics would hopefully beat either of these simple models to exhibit “positive skill”.  Then, the Skill Score would be

Skill Score = [1 - (Error of the hindcast)/(Error of the Reference model)]x100%

If a physics-based model of the global economy does no better than the reference at predicting the present, then the Skill Score is zero percent. If it does perfectly, then the Skill Score is 100%.

Hindcasts of civilization growth
I have applied these techniques to evaluate the predictive skill of a new economic growth model for the long-run evolution of civilization. This model approaches the global economy rather like an organism. Civilization's growth rate is determined by its past well-being, environmental predation, whether it eats all its food, and whether it is able to move on to discover new food sources.

For civilization, food is things like oil and iron. We use the energy in oil to incorporate iron into our structure just as people use carbs, protein and fat to turn bread into flesh. Civilization depletes reserves at the same time it uses them to discover and grow into new reservoirs, if they exist. Our ability to discover and exploit new reservoirs might easily be impeded by natural disasters, such as those we might experience from climate change.

A model based on these concepts provides deterministic expressions for civilization’s rates of economic growth and energy consumption. Input parameters are the current rate of growth of global energy consumption and wealth  and a rate of technological change that can be derived from, among other things, past observations of inflation and raw material consumption. Output parameters include the rate of return on wealth and primary energy consumption, how fast this rate is growing (or what is termed the “innovation rate”), and the world GDP growth rate (or GWP).

Gray lines: Fully prognostic model hindcasts initialized in 1960 for the global rate of return on wealth, economic innovation rates, and the GWP growth rate. Hindcasts are derived assuming an average rate of technological change of 5.1%/yr (dashed lines) derived from conditions observed in the 1950s. Solid colored lines: Observed decadal running means. The model reproduces observations with skill scores > 90%.

As shown in the figure above, a first principles physics-based model initialized in 1960, based only on observations available in the 1950s, does remarkably well at hindcasting evolution through the present. For example, average rates of energy consumption growth in the past decade would have been forecast to be 2.3 % per year relative to an observed average of 2.4 % per year. Relative to a persistence prediction of the 1.0% per year growth rate observed in the 1950s, the Skill Score is 96%.

Or, using the same model, a forecast of the GWP growth rate for 2000 to 2010 based on data from 1950 to 1960 would have been 2.8% per year compared to the actual observed rate of 2.6% per year. The persistence forecast based on the 1950 to 1960 period is 4.0% per year, so the skill score is 91%.

No other economic model I am aware of is capable of such accuracy, at least not without cheating by tuning the model to data between 1960 and 2010. How is it then that the physics-based model does so well at predicting the present based only on conditions 50 years ago?

Well, the obvious answer might be that humanity acts as a physical system and the model at least has the correct physics. But it helps too that the model was initialized in the mid-twentieth century when civilization was responding to an exceptionally strong impulse of fossil fuel discovery. The figure above uses the IHS PEPS data base to show that between 1950 and 1970, remaining global reserves of oil and natural gas doubled because discoveries outpaced depletion. Since, discovery and depletion have been in approximate balance; remaining reserves have been more or less stable.

It is as if civilization suddenly found itself in 1950 at an enormous restaurant buffet. Each time it visited the table it discovered new plates of delicious energy to consume, and its appetite increased apace. At some point around 1970, however, its appetite increased to the point that it discovered new food not much faster than it consumed the food that was already there. The amount of known food on the table stayed stable.

New discoveries matter, just not as much as showing up at the buffet in the first place. Finding the buffet was far more innovative than merely going back to the table, and it had a correspondingly large and lasting impact on economic growth.

There was a remarkable discovery event between 1950 to 1970 period, and what followed was a clear physical response to this strong prior forcing. Forecasting the future should also be possible, but it will probably be more of a challenge than hindcasting the past 50 years...unless, once again there is a new wave of massive energy reserve discovery. If discovery once again outpaces growing demand, it might propel civilization to a renewed phase of accelerated innovation and growth. Then, I anticipate that our future trajectory will once gain be amenable to deterministic forecasts using economic equations based on physics.

Thursday, September 20, 2018

Is increasing energy efficiency driving global climate change?

Improving energy efficiency is our best hope to slow global energy consumption and limit carbon dioxide emissions. 

Makes perfect sense, right? Better technology for more jobs and a healthier planet! Yay capitalism. 

But let's look a little closer. People may choose to drive more often if a vehicle is fuel efficient: driving is useful or pleasurable and now it is more affordable. Or, less money spent on fueling energy efficient vehicles could enable more money to be spent on fuel for home air conditioning.

Economist do acknowledge this to some degree referring to a phenomenon called "rebound". A very few studies even argue for “backfire”: gains in energy efficiency ultimately lead to greater energy consumption.  The idea was first introduced by William Stanley Jevons in 1865. Jevons was emphatic that energy efficient steam engines had accelerated Britain’s consumption of coal. The cost of steam-powered coal extraction became cheaper and, because coal was very useful, more attractive.

Calculating the total magnitude of rebound or backfire has proved contentious and elusive. The problem for academics has been that any given efficiency improvement has knock-on effects that can eventually propagate through the entire global economy. Estimating the ultimate impact is daunting if not impossible. 

Imagine you buy a nice new fuel efficient car. An unequivocal good for the environment, right? Sure feels good to do one's part to save the planet. And you have a fatter wallet too since you spend less on gas. Life's good! You can spend that saved money now (for argument’s sake) on better household heating and cooling so that you sleep better at nights. Being more rested you become more productive at work, giving you a raise and your employer higher profits. The business grows to consume more while you take that much deserved flight for a vacation in Cancun. 

In this fashion, the ramifications of any given efficiency action might multiply indefinitely, spreading at a variety of rates throughout the global economy. Barring global analysis over long time scales, conclusions about the magnitude of rebound or backfire may be quantitative but highly uncertain since they are always dependent on the time and spatial scales considered. 

Analyzing the global economy like a growing child
There’s a way around this complexity - to ignore it, by treating the economy only as a whole. 

Stepping back like this is a standard part of the physics toolbox. Imagine describing the growth of a child without being an expert in physiology. It shouldn't take a doctor to comprehend that the child uses the material nutrients and potential energy in food not only to produce waste but also to grow its body mass. As the child grows, it needs to eat more food, accelerating its growth until it reaches adulthood and its growth stabilizes (hopefully!). 

Now, an inefficient, diseased child who cannot successfully turn food to body mass may become sickly, lose weight, and even die. But a healthy, energy efficient child will continue to grow and some day become a robust adult who consumes food energy at a much higher rate than as an infant. 

What could be treated as a tremendously complicated problem can also be approached in a fairly straight-forward manner, provided we look at the child as a complete person and not just a complex machine of component body parts. 

Efficient civilization growth
We can take the same perspective with civilization.  Without a doubt, consuming energy is what allows for all of civilization’s activities and circulations to continue -- without potential energy dissipation nothing in the economy can happen; even our thoughts and choices require energy consumption for electrical signals to cross neural synapses. Just like a child, when civilization is efficient it is able to use a fraction of this energy in order to incorporate new raw materials into its structure. It was by being efficient that civilization was able to increase its size. 

When civilization expands, it increases its ability to access reserves of primary energy and raw materials, provided they remain or are there to be discovered. Increased access to energy reserves allows civilization to sustain its newly added circulations. If this efficiency is sustained, civilization can continue to grow. In a positive feedback loop, expansion work leads to greater energy inputs, more work, and more rapid expansion. 

This is the feedback that is the recipe for emergent growth, not just of civilization, or a child, but of any system. The more efficiently energy is consumed, the faster the system grows, and the more rapidly the system grows its energy consumption needs. 

Ultimately there are constraints on efficiency and growth from reserve depletion and internal decay. But in the growth phase, efficient conversion of energy to work allows civilization to become both more prosperous and more consumptive.

Implications for climate change
It is easy to find economists willing to express disdain for the concept of backfire, or even rebound, by pointing to counter-examples in economic sectors or nations where energy efficiency gains have led to less energy consumption. For example, the USA has become more efficient and thereby stabilized its rate of energy consumption. 

While these counter-examples may be true, they are also very misleading, especially if the subject is climate change. Nations do not exist in economic isolation. Through international trade the world shares and competes for collective resources. Quite plausibly, the only reason the USA appears to consume less energy is that it has outsourced the more energy intensive aspects of its economy to countries like China. Should an economist argue that “There is nothing particularly magical about the macroeconomy, it is merely the sum of all the micro parts” we can be just as dismayed as we would upon hearing a medical practitioner state that “there is nothing particularly magical about the human body, it is merely the sum of all its internal organs”. Connections matter!

Fundamentally, through trade, civilization can be treated as being “well-mixed” over timescales relevant to economic growth. In other words, trade happens quickly compared to global economic growth rates of a couple of percent per year. Similarly, excess atmospheric concentrations of CO2 grow globally at a couple of percent per year. They too are well-mixed over timescales relevant to global warming forecasts because atmospheric circulations quickly connect one part of the atmosphere every other. For the purpose of relating the economy to atmospheric CO2 concentrations, the only thing that matters is global scale emissions by civilization as a whole.

Taking this global perspective with respect to the economy, efficiency gains will do the exact opposite of what efficiency policy advocates claim it will do. If technological changes allow global energy productivity or energy efficiency to increase, then civilization will grow faster into the resources that sustain it. This grows the economy, but it also means that energy consumption and CO2 emissions accelerate. 

CO2 emissions can be stabilized despite efficiency gains. But this is possible only if decarbonization occurs as quickly as energy consumption grows. At today’s consumption growth rates, this would require roughly one new nuclear power plant, or equivalent in renewables, to be deployed each day

For more details

Garrett, T. J., 2012: No way out? The double-bind in seeking global prosperity alongside mitigated climate change, Earth System Dynamics 3, 1-17, doi:10.5194/esd-3-1-2012

Monday, September 10, 2018

On the thermodynamic origins of economic wealth

What are the origins of wealth?
Economics textbooks describe wealth as an accumulation of all financially valuable resources. It is our collective beliefs that give this accumulated stock value.  Human labor uses this stock to produce more stuff through the GDP thereby enabling overall wealth to grow with time.

At least on the face of it, this view of the economy makes a lot of sense. Economists have mathematical equations that express these ideas providing quantitative descriptions for how and why the economy grows.

Yet something still seems unsatisfyingly magical. Why should we believe in the concept of economic value in the first place?. The existence of a financial system is hardly obvious. It hasn’t always existed through history, even during periods where people produced and consumed. And most of what we do in our lives (fortunately) doesn’t involve any exchange of currency at all. We are able to enjoy a good moment of each other’s company without having to pay a single cent.

The economy and the second law
Sure, financial wealth is a human quantity, but we are still part of the physical universe. No matter how rich we may be, we are all equal subjects of its rules.

Chief among these rules is the Second Law of Thermodynamics. The Second Law has been expressed in many ways that are either wrong, strangely mystical, or maddeningly vague. It doesn't have to be this way. The most straightforward is to view the direction of time as a flow of matter that redistributes energy to ever lower potentials. Drop something it falls. It was up, now it’s down; air flows from high to low gravitational potential or pressure to make the winds. Easy.

Take the waterwheel in a mill. A mill consumes high gravitational potential energy from a flowing stream. The flow drives the wheel circulations and finishes its journey in the stream below where the potential energy is becomes unusable. The total capacity of the mill to dissipate potential energy, its size or “stock”, is something we can estimate by looking at the size of the mill and noting how fast it circulates.

Or how about a hurricane? The pressure difference between the eye of the hurricane and its surroundings provides the potential energy with which to drive the winds while the hurricane constantly loses energy by radiating to space. Again the hurricane has a size or "stock" that defines its power.

What does this have to do with the economy? Well, everything. Our perceptions are based on neuronal activity in the form of cyclical transfers of charge from high to low potential in our brains. The cycles are sustained by by high potential calories in food that we dissipate as waste heat from our bodies. Our food is produced with high potential fossil fuels that we burn to till the land, produce fertilizer and transport from farm to market. We get to and from market using gasoline that is dissipated in our cars. The money we use to buy food comes from the fruits of our labors staring at computers that that themselves dissipate energy as they make computations with a certain cycle frequency and transfer data to and from other computers along communication networks, all of which turns high potential energy to low potential waste heat.

But can we really reduce all this to something as simple as a waterwheel or hurricane? There’s 7+ billion of us, our brains are so complicated, and the economy is so big.

All the circulations in civilization are ultimately derived from the consumption and dissipation of high energy density “primary energy resources”. As a global organism, our civilization collectively feeds on the energy in coal, oil, natural gas, uranium, hydroelectric power and renewables. Civilization continually consumes these resources to accomplish two things: the first is to propel all civilization’s internal back-and-forth “economic” circulations along its accumulated networks; the second is to incorporate raw materials into our structure in order to grow and maintain our current size against the ever present forces of dissipation and decay.

Energy, from whatever source, powers our machines, our telecommunications, modern agriculture, and the supply of the meals that give us the energy to sustain our thoughts, attention, and perceptions. Without energy, civilization would no longer be measurable. Everything would grind to a halt. Nothing would work. Lacking food, we would be dead and our attention span with it. The gradient that meaningfully distinguishes civilization from its environment would disappear. Value would vanish.

Wealth is power
Stepping back to see the world economy as a simple physical object, one where people are only part of a larger whole, would be a stretch for a traditional economist hung up on the idea that wealth must be restricted to physical capital rather than people. But, crucially, unlike traditional models, it is an idea that can be rigorously tested and potentially disproved. It is a hypothesis that is falsifiable

I have shown in peer-reviewed studies published in Climatic Change, Earth System Dynamics, and Earth’s Future that the observed relationship between the current rate of energy consumption or power of civilization, and its total economic wealth (not the GDP), is a fixed constant of 7.1 ± 0.1 milliwatts per inflation-adjusted 2005 dollar.

Equivalently, every 2005 dollar requires 324 kiloJoules be consumed over a year to sustain its value. In 2010, the global energy consumption rate of about 17 TW sustained about 2352 trillion 2005 dollars of global wealth. In 1970, both numbers were about half this. Both quantities have increased slowly by about 1.4% per year to 2.2% per year averaging a growth rate of 1.90% /year.  The ratio of the two quantities has stayed nearly constant over a time period when both wealth and energy consumption have more than doubled and the rates of growth have increased by about 50%. Currency is the psychological manifestation of a capacity to dissipate energy.

Can wealth continue to grow?
What this means is that we must continue to grow our capacity to consume primary energy reserves just to grow our wealth. We should never conclude that growth can’t continue over coming decades, as some claim in perennial doomsday predictions. It’s just that there is nothing stronger than inertia to guarantee that it will. The water wheel in the picture above can rot or the river can dry. Hurricane low pressures can dissolve. For us, continued consumption growth may quite plausibly become too difficult due to depletion of energy and mineral reserves or accelerating environmental disasters such as climate change. If this happens, all our efforts to produce growth can be expected to be more than offset by decay.

At some point, all systems experience decay and collapse. We’ve seen the waxing and waning of civilizations throughout history. Historical studies suggest that any long-term decline in a society’s capacity to consume forebodes hyper-inflation, war, and population decline. The question for us should not be whether collapse will happen, but when, and whether it will be slow or sudden. 

Friday, August 17, 2018

The global economy, heat engines, and economic collapse

British Petroleum provides some pretty nice tools for visualizing energy consumption like the figure above which drives home effectively the point of just how fast our demand for energy is growing, roughly quadrupling in the past 50 odd years.

In order to understand this growth better, I think it's important to ask why we need energy in the first place. This may seem like a pretty bone-headed question -- of course we need energy. But energy is not an essential ingredient in traditional macro-economic models. In the best case energy is treated as a quantity that can be "substituted" for other ingredients of the global economy as capital and labor.

As a physicist, this seems totally nuts as our individual ability to work rests on the availability of energy. We're not somehow divorced from the laws of the universe. I've never heard of someone being an effective element of the labor force who had completely ceased to eat. And food sure doesn't materialize without work being done.

Instead, I think it's appropriate to treat civilization as a what can be termed a thermodynamic heat engine. The idea of a heat engine was first envisioned by French engineers in the early 1800s. In a car, work is done to propel a car forward by consuming the chemical energy in gasoline at high temperatures and dissipating it as waste heat at low temperatures with the pistons moving up and down in between.

In one way, we're very similar. We consume energy to go through the cyclic motions of going to and from work and the grocery store, sending out internet search requests, and pumping our hearts. All these actions require a temperature gradient where energy is released at high temperatures and dissipate at cold temperatures, whether with our cars, our computers, or the gradient from the inside to exteriors of our bodies. In fact, we can see all of human civilization as a "super-organism" that consumes primary energy to engage in all of its internal circulations, ultimately radiating waste heat to the atmosphere and then to cool of space.

High potential primary energy resources like oil and coal sustain civilization’s circulations against dissipation of waste heat. ‘Useless’ energy ultimately flows to space through the cold planetary blackbody temperature of 255 K. In between lies civilization, including people, their activities, and
all their associated circulations, whether or not they are part of the GDP.

Civilization Growth

A key difference between human civilization and a car is that it can grow. By growing, its thermodynamic engine expands. A larger engine consumes more, dissipates more, and does work ever faster. This positive feedback provides a recipe for exponential growth.

Civilization uses energy consumption mostly to sustain existing circulations. A small fraction is also used to grow civilization through an incorporation of new raw materials (e.g. iron and wood) into its structure. Thermodynamically, this is possible only if civilization consumes a little more energy than it dissipates. A small fraction of the energy that is consumed is available to incorporate raw materials to build civilization.

We’re actually pretty familiar with this. If we eat too much we get fat. I’m told that consuming an extra 3500 calories beyond what we need leads to a pound of weight gain. This is the energy required for the body to turn food into flesh.

A child consumes food today in some proportion to the child’s body mass. The child experiences a production of mass if there is a convergence of energetic flows such that it dissipates less heat than is contained in the food energy eaten. The child’s current size is directly a consequence of an accumulation of prior mass production. Its current rate of food consumption is also a consequence of prior production. As the child grows it eats more. As the child approaches adulthood, the disequilibrium between consumption and dissipation narrows, and (hopefully!) the production of new mass stalls.

So economic production, or the GDP, can be seen as the consequence of this imbalance: production is positive only when primary energy consumption is greater than the rate at which civilization dissipates energy due to all it’s internal circulations. If production is positive, civilization is able to incorporate raw materials into its structure. It grows, and then uses the added population and infrastructure created with the materials to consume even more energy.


I think this is what is happening with the BP statistics. Because the GWP exists, we grow, and then use our growth to access more energy which we can then consume with the higher infrastructure demands. The relevant equation is that every 1000 dollars of year 2005 inflation-adjusted gross world product requires 7.1 additional Watts of power capacity to be added, independent of the year that is considered.

Right now, energy consumption is continuing to grow rapidly, sustaining an ever larger GWP. But it is not the rate of energy consumption that supports the GWP, but the rate of growth of energy consumption that supports the GWP.

This important distinction is flat out frightening. The implication is that if we cease to grow energy and raw material consumption globally, then the global economy must collapse. But if don't cease to grow energy consumption and raw material consumption then we still collapse due to climate change and environmental destruction.  Is there no way out?