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51 comments on Physics in the Economy I: Physical Work

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Stuart Staniford on September 12, 2005 - 11:40am Permalink | Subthread | Parent | Comments top
I happen to think classical economics has an enormous amount of useful insights into the world, but some blind spots also. I think (as I'll articulate in a later post) the reason they've been able to underplay the role of energy is because EROEI has been so high on oil/coal in the past. Thus society only had to put a very modest proportion of its effort into securing further energy supplies. Hence the energy industry has been a small proportion of GDP, which means (some) economists have viewed it as not that important. To look at it as a biologist might, energy has been nowhere near the bottleneck for the economy (in a Liebig's law sense, and so growth theory could safely neglect it - focussing instead primarily on the role of labor and capital as inputs to the economy).
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TI on September 12, 2005 - 1:31pm Permalink | Subthread | Parent | Comments top
One of the best energy economists is Ayres (http://www.iiasa.ac.at/Research/ECS/IEW2003/Papers/2003P_Ayres.pdf). He has shown that the net effective energy is dominant factor in economic growth.

Energy is not only a constraint, it is the real driving force in economic growth. Its price or share of GDP is another matter. Classical economic s
is just what it sounds, classical. It means it has been developed at a time when economic growth was very slow and it models basically a static economy. The world has experienced sustained, long term rapid economic growth only about 50 - 60 years (this is at the level of 3 - 6% a year).

But here we speak about energy, not only oil. The '70s is an interesting period: the oil consumption really decreased considerably. But the total energy consumption did not. There was probably a small drop at the time of world energy crisis but otherwise constant growth. A sizable part of oil consumption could be substituted by natural gas, nuclear energy and coal. But now? This would be much more difficult.  

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Stuart Staniford on September 12, 2005 - 8:52pm Permalink | Subthread | Parent | Comments top
I am much enamoured of Ayres' thinking at present. But I'm afraid I'm going to have to get there at a slow plodding tutorial pace in the hope of bringing a broader audience along. I don't think the significance of Ayre's work can be appreciated without some grounding both in physics and in economics (which I hope to supply here as I go).
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51 comments on Physics in the Economy I: Physical Work

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