Wednesday, December 8, 2010

Classical Economics is driving us off the cliff because it ignores zero-cost stuff like water and air?

KMO (host of the C-Realm Podcast) has a kick-ass episode titled 234: It's About Stuff where he chats with Charles A. S. Hall about biophysical economics. About, what? The Wikipedia has this to say: "Thermoeconomics, also referred to as biophysical economics, is a school of heterodox economics that applies the laws of thermodynamics to economic theory." Which means, that it takes into account physical things about the environment.

What an astonishing concept. Astonishing, that is, in its absence in normal economic theory. And astonishing that I hadn't thought about this simple concept in this way.

The problem explained in the podcast is that normal economics ignores things like air because there's no cost for it. It ends up ignoring the physical world. Normal economics is based on models that are essentially perpetual motion machines, as described in the podcast. Goods and materials flow through the economic system with no "friction" in the form of diminishment of resources or environmental quality. But here in the real world mining stuff like oil or coal or iron ore diminishes the reservoir, and eventually there will be a peak in the supply of that resource.

As they say in the podcast, perpetual motion machines simply are impossible by the known laws of physics. However as they also say in the podcast, science has grown accustomed to occasionally having to rethink its model of the material world because of new information which discredits the old models.

Wikipedia: "Thermoeconomists claim that human economic systems can be modeled as thermodynamic systems. Then, based on this premise, they attempt to develop theoretical economic analogs of the first and second laws of thermodynamics. Thermoeconomists argue that economic systems always involve matter, energy, entropy, and information."

The links below have lots of papers you can read to learn more.

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