Why economists argue with ecologists (4): Economics and thermodynamics

If you think environmental economists are a boring lot, look up this 1997 issue of Ecological Economics. It covers a debate between three economists on economic growth and the environment, but at times it reads like a transcript of a Jerry Springer show. On one side we have Herman Daly, one of the first ecological economists and co-founder of the journal Ecological Economics. On the other side we have Robert Solow and Joseph Stiglitz. Solow and Stiglitz are environmental economists, neoclassical economists, or mainstream economists, whatever you want to call them, although Stiglitz has lately turned into antiglobalists' favourite economist due to his criticism of globalization.

The trouble actually started twenty years earlier, when Solow and Stiglitz pointed out that when we run out of one resource, we can substitute it by another one: when we run out of oil, we switch to natural gas; when gas runs out, we switch to solar energy; and so on. Because we can always invent better and more efficient ways of meeting our needs, the economy should be able to keep on growing for the foreseeable future, or perhaps even indefinitely. Not everybody agreed, and an economist called Nicholas Georgescu-Roegen wrote a scathing rebuke where he argued that not all resources will be as easily substituted: if we run out of fish, how will we make our paella? If we run out of oxygen, what will we breathe? The idea of eternal economic growth, he argued, violated the laws of thermodynamics. To put it very crudely, these laws state that although you could convert matter into energy (which is what happens in a nuclear reactor), or energy into matter (as happens in particle accelerators), it is impossible to create energy or matter out of nothing. Georgescu-Roegen accused Solow and Stiglitz of "ignoring the difference between the real world and the Garden of Eden" and of "conjuring tricks." In the 1997 issue of Ecological Economics, Daly compares Solow to a medieval alchemist trying to turn lead into gold. You may not consider that particularly diplomatic, but Solow and Stiglitz pull no punches either. The opening sentence of Solow's article reads

Dr Daly's prose tends to dissolve at any moment into a dense cloud of righteousness. This makes it very hard to respond rationally to his performance.

Stiglitz's reaction seems somewhat friendlier, until we get to the last few sentences:

No one, to our knowledge, is proposing repealing the laws of thermodynamics! Doing so would make as little sense as the act of one state legislature that thought that students' intellectual resources could be economized by changing the value of π from the highly inconvenient 3.1416... to just 3.
In the end, we hope we have made our essential points, using somewhat fewer trees and other resources than Daly did in his 15-page note.

I will not go into all the arguments used in this debate now. There is a lot to be said about economic growth, too much in fact for one blog post. But that these people argue over the law of thermodynamics points towards another difference between ecologists and economists.

The laws of thermodynamics are central to many environmental sciences. Climate scientists include in their models the amount of heat the sun directs at the Earth, as well as the amount of heat that the Earth radiates or reflects into space: the difference is net warming, or net cooling. Biologists model animals as barrels of energy where energy goes in as food and goes out as movement and body heat: this helps biologists explain under what circumstances a species thrives and when it goes extinct. Whatever the system, if there is energy or matter coming out of it, the same amount must also be going in somewhere, or the system is either collecting or losing something. No wonder ecologists are critical of economic growth: if you produce more, it must be because you are losing something somewhere else. So how can these economists claim that we can produce ever more with ever less inputs?

Like Stiglitz says, no economist proposes to repeal the laws of thermodynamics: they govern how we can convert raw materials, energy, and labour into cars, computers, and so on. In other words, they would apply if we were talking about producing ever more stuff. But economics does not necessarily deal with stuff, but with the value of that stuff. And believe it or not: it is possible to create value out of nothing, and to make it disappear into nothing.

In fact it works a lot like information. A while ago I read a rather strange question in Intermediair, a Dutch career magazine: does a USB stick get heavier when you load it with data? The answer, of course, is no. To a computer, a USB stick is like an Etch-A-Sketch: it uses it to write things down by moving stuff around, not by adding stuff. A USB stick contains loads and loads of switches that can be either turned 'on' or 'off' (if I'm not mistaken, my 16GB USB stick has 134,217,728 of them). A computer 'reads' the information on a USB stick by observing which switches are 'on' and which ones are 'off'. Together, these switches can contain the latest Ufomammut CD, a movie of your PhD defense, or your illegal copy of Matlab. Put these files on your USB stick, and the USB stick has become a lot more valuable to you. How often do you read that some official has lost a USB stick with sensitive data? And this is all possible without changing the mass, nor the energy contained in the USB stick. (OK, to be honest, there may be some swapping of electrons between the stick and the computer, but that is negligible.) But leave it near a strong magnetic field and all your data are lost. And the USB stick has become worthless.

I sometimes get the impression that ecologists tend to treat value as they would treat the number π, or the density of some material, or the temperature of a body. Some studies measure it for a few samples and then aggregate them over the entire planet. And the folks who cite those studies seem to assume it remains unchanged over time. But value is a strange concept. Ever wonder why water is so much cheaper, yet so much more important to human life than gold? Value also varies between individuals and over time. You may not give a rat's ass for Trout Mask Replica, but there are folks out there willing to lose an eye for an original vinyl copy. Likewise, is there anyone who still listens to The Sweet? I mean, seriously?

Granted: so far economies have grown partly because we are getting more effective at extracting and using ever more inputs, and thereby producing ever more stuff. This is something we cannot keep doing indefinitely: resources are finite, the amount of solar energy our planet receives is finite. There is only so much stuff you can produce, period.

But economies also grow by producing more value with the same inputs, by tayloring products to people's wishes ever more precisely, or by enhancing the efficiency of production. How long we can keep that up is lot more difficult to say.