[ExI] Exponential Economist Meets Finite Physicist

[James Clement]

I thought this might interest the group.

http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-physicist/

Exponential Economist Meets Finite Physicist

3628 views this month; 0 overall

Some while back, I found myself sitting next to an accomplished economics
professor at a dinner event. Shortly after pleasantries, I said to him,
“economic growth cannot continue indefinitely,” just to see where things
would go. It was a lively and informative conversation. I was somewhat
alarmed by the disconnect between economic theory and physical
constraints—not for the first time, but here it was up-close and personal.
Though my memory is not keen enough to recount our conversation verbatim, I
thought I would at least try to capture the key points and convey the
essence of the tennis match—with some entertainment value thrown in.

Cast of characters: *Physicist*, played by me; *Economist*, played by an
established economics professor from a prestigious institution. Scene:
banquet dinner, played in four acts (courses).

*Note: because I have a better retention of my own thoughts than those of
my conversational companion, this recreation is lopsided to represent my
own points/words. So while it may look like a physicist-dominated
conversation, this is more an artifact of my own recall capabilities. I
also should say that the other people at our table were not paying
attention to our conversation, so I don’t know what makes me think this
will be interesting to readers if it wasn’t even interesting enough to
others at the table! But here goes…*

Act One: Bread and Butter

*Physicist:* Hi, I’m Tom. I’m a physicist.

*Economist:* Hi Tom, I’m [ahem..cough]. I’m an economist.

*Physicist:* Hey, that’s great. I’ve been thinking a bit about growth and
want to run an idea by you. I claim that economic growth cannot continue
indefinitely<http://physics.ucsd.edu/do-the-math/2011/07/can-economic-growth-last/>
.

*Economist:* [chokes on bread crumb] Did I hear you right? Did you say that
growth can*not* continue forever?

*Physicist:* That’s right. I think physical limits assert themselves.

*Economist:* Well sure, nothing truly lasts *forever*. The sun, for
instance, will not burn forever. On the billions-of-years timescale, things
come to an end.

*Physicist:* Granted, but I’m talking about a more immediate timescale,
here on Earth. Earth’s physical resources—particularly energy—are limited
and may prohibit continued growth within centuries, or possibly much
shorter depending on the choices we make. There are thermodynamic issues as
well.

*Economist:* I don’t think energy will ever be a limiting factor to
economic growth. Sure, conventional fossil fuels are finite. But we can
substitute non-conventional resources like tar sands, oil shale, shale gas,
etc. By the time these run out, we’ll likely have built up a renewable
infrastructure of wind, solar, and geothermal energy—plus next-generation
nuclear fission and potentially nuclear fusion. And there are likely energy
technologies we cannot yet fathom in the farther future.

*Physicist:* Sure, those things could happen, and I hope they do at some
non-trivial scale. But let’s look at the physical implications of the
energy scale *expanding* into the future. So what’s a typical rate of
annual energy growth over the last few centuries?

*Economist:* I would guess a few percent. Less than 5%, but at least 2%, I
should think.
 [image: U.S. total energy 1650-present
(logarithmic)]<http://physics.ucsd.edu/do-the-math/wp-content/uploads/2011/07/us-log.png>

Total U.S. Energy consumption in all forms since 1650. The vertical scale
is logarithmic, so that an exponential curve resulting from a constant
growth rate appears as a straight line. The red line corresponds to an
annual growth rate of 2.9%. Source: EIA.

*Physicist:* Right, if you plot the U.S. energy consumption *in all forms* from
1650 until now, you see a phenomenally faithful exponential at about 3% per
year over that whole span. The situation for the whole world is similar. So
how long do you think we might be able to continue this trend?

*Economist:* Well, let’s see. A 3% growth rate means a doubling time of
something like 23 years. So each century might see something like a 15–20×
increase. I see where you’re going. A few more centuries like that would
perhaps be absurd. But don’t forget that population was increasing during
centuries past—the period on which you base your growth rate. Population
will stop growing before more centuries roll by.

*Physicist:* True enough. So we would likely agree that energy growth will
not continue indefinitely. But two points before we continue: First, I’ll
just mention that energy growth has far outstripped population growth, so
that *per-capita* energy use has surged dramatically over time—our energy
lives today are far richer than those of our great-great-grandparents a
century ago [economist nods]. So even if population stabilizes, we are
accustomed to per-capita energy growth: total energy would have to continue
growing to maintain such a trend [another nod].

Second, thermodynamic limits impose a cap to energy growth lest we cook
ourselves. I’m not talking about global warming, CO2 build-up, etc. I’m
talking about radiating the spent energy into space. I assume you’re happy
to confine our conversation to Earth, foregoing the spectre of an exodus to
space <http://physics.ucsd.edu/do-the-math/2011/10/why-not-space/>,
colonizing planets, living the Star Trek life, etc.

*Economist:* More than happy to keep our discussion grounded to Earth.

*Physicist:* [sigh of relief: not a space cadet] Alright, the Earth has
only one mechanism for releasing heat to space, and that’s via (infrared)
radiation. We understand the phenomenon perfectly well, and can predict the
surface temperature of the planet as a function of how much energy the
human race produces. The upshot is that at a 2.3% growth rate (conveniently
chosen to represent a 10× increase every century), we would reach boiling
temperature in about 400 years. [Pained expression from economist.] And
this statement is *independent of technology*. Even if we don’t have a *name
* for the energy source yet, as long as it obeys thermodynamics, we cook
ourselves<http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-energy/>
with
perpetual energy increase.

*Economist:* That’s a striking result. Could not technology pipe or beam
the heat elsewhere, rather than relying on thermal radiation?

*Physicist:* Well, we *could* (and do, somewhat) beam non-thermal radiation
into space, like light, lasers, radio waves, etc. But the problem is that
these “sources” are forms of high-grade, low-entropy energy. Instead, we’re
talking about getting rid of the *waste heat* from all the processes by
which we use energy. This energy *is* thermal in nature. We might be able
to scoop up *some* of this to do useful “work,” but at very low
thermodynamic efficiency. If you want to use high-grade energy in the first
place, having high-entropy waste heat is pretty inescapable.

*Economist:* [furrowed brow] Okay, but I still think our path can easily
accommodate at least a *steady* energy profile. We’ll use it more
efficiently and for new pursuits that continue to support growth.

*Physicist:* Before we tackle that, we’re too close to an astounding point
for me to leave it unspoken. At that 2.3% growth rate, we would be using
energy at a rate corresponding to the total solar input striking Earth in a
little over 400 years. We would consume something comparable to the *entire
sun* in 1400 years from now. By 2500 years, we would use energy at the rate
of the entire Milky Way
galaxy<http://physics.ucsd.edu/do-the-math/2011/07/galactic-scale-energy/>—100
billion stars! I think you can see the absurdity of continued energy
growth. 2500 years is not *that* long, from a historical perspective. We *
know* what we were doing 2500 years ago. I think I *know* what we’re *not*going
to be doing 2500 years hence.

*Economist:* That’s really remarkable—I appreciate the detour. You said
about 1400 years to reach parity with solar output?

*Physicist:* Right. And you can see the thermodynamic point in this
scenario as well. If we tried to generate energy at a rate commensurate
with that of the Sun in 1400 years, and did this on Earth, physics demands
that the surface of the Earth must be *hotter* than the (much larger)
surface of the Sun. Just like 100 W from a light bulb results in a much
hotter surface than the same 100 W you and I generate via metabolism,
spread out across a much larger surface area.

*Economist:* I see. That does make sense.
Act Two: Salad

*Economist:* So I’m as convinced as I need to be that growth in raw energy
use is a limited proposition—that we must one day at the very least
stabilize to a roughly constant yearly expenditure. At least I’m willing to
accept that as a starting point for discussing the long term prospects for
economic growth. But coming back to your first statement, I don’t see that
this threatens the indefinite continuance of *economic* growth.

For one thing, we can keep energy use fixed and still do more with it in
each passing year via efficiency improvements. Innovations bring new ideas
to the market, spurring investment, market demand, etc. These are things
that will not run dry. We have plenty of examples of fundamentally
important resources in decline, only to be substituted or rendered obsolete
by innovations in another direction.

*Physicist:* Yes, all these things happen, and will continue at some level.
But I am not convinced that they represent limitless resources.

*Economist:* Do you think ingenuity has a limit—that the human mind itself
is only so capable? That could be true, but we can’t credibly predict how
close we might be to such a limit.

*Physicist:* That’s not really what I have in mind. Let’s take efficiency
first. It is true that, over time, cars get better mileage, refrigerators
use less energy, buildings are built more smartly to conserve energy, etc.
The best examples tend to see factor-of-two improvements on a 35 year
timeframe, translating to 2% per year. But many things are already as
efficient as we can expect them to be. Electric motors are a good example,
at 90% efficiency. It will always take 4184 Joules to heat a liter of water
one degree Celsius. In the middle range, we have giant consumers of
energy—like power plants—improving much more slowly, at 1% per year or
less. And these middling things tend to be something like 30% efficient.
How many more “doublings” are possible? If many of our devices were 0.01%
efficient, I would be more enthusiastic about centuries of efficiency-based
growth ahead of us. But we may only have one more
doubling<http://physics.ucsd.edu/do-the-math/2011/07/can-economic-growth-last/>
in
us, taking less than a century to realize.

*Economist:* Okay, point taken. But there is more to efficiency than
incremental improvement. There are also game-changers. Tele-conferencing
instead of air travel. Laptop replaces desktop; iPhone replaces laptop,
etc.—each far more energy frugal than the last. The internet is an example
of an enabling innovation that changes the way we use energy.

*Physicist:* These are important examples, and I do expect some
continuation along this line, but we still need to eat, and no activity can
get away from energy use entirely. [semi-reluctant nod/bobble] Sure, there
are lower-intensity activities, but nothing of economic value is completely
free of energy.

*Economist:* Some things can get awfully close. Consider virtualization.
Imagine that in the future, we could all own virtual mansions and have our
every need satisfied: all by stimulative neurological trickery. We would
stil need nutrition, but the energy required to*experience* a high-energy
lifestyle would be relatively minor. This is an example of enabling
technology that obviates the need to engage in energy-intensive activities.
Want to spend the weekend in Paris? You can do it without getting out of
your chair. [More like an IV-drip-equipped toilet than a chair, the
physicist thinks.]

*Physicist:* I see. But this is still a finite expenditure of energy per
person. Not only does it take energy to feed the person (today at a rate of
10 kilocalories<http://physics.ucsd.edu/do-the-math/useful-energy-relations/#kcal>
of
energy input per kilocalorie eaten, no less), but the virtual environment
probably also requires a supercomputer—by today’s standards—for every
virtual voyager. The supercomputer at UCSD consumes something like 5 MW of
power. Granted, we can expect improvement on this end, but today’s
supercomputer eats 50,000 times as much as a person does, so there is a big
gulf to cross. I’ll take some convincing. Plus, not everyone will want to
live this virtual existence.

*Economist:* Really? Who could refuse it? All your needs met and an
extravagant lifestyle—what’s not to like? I hope I can live like that
myself someday.

*Physicist:* Not me. I suspect many would prefer the smell of real
flowers—complete with aphids and sneezing; the feel of real wind messing up
their hair; even real rain, real bee-stings, and all the rest. You might be
able to simulate all these things, but not everyone will want to live an
artificial life. And as long as there are *any* holdouts, the plan of
squeezing energy requirements to some arbitrarily low level fails. Not to
mention meeting fixed bio-energy needs.
Act Three: Main Course

*Physicist:* But let’s leave the Matrix, and cut to the chase. Let’s
imagine a world of steady population and steady energy use. I think we’ve
both agreed on these physically-imposed parameters. If the flow of energy
is fixed, but we posit continued economic growth, then GDP continues to
grow while energy remains at a fixed scale. This means that energy—a
physically-constrained resource, mind—must become arbitrarily cheap as GDP
continues to grow and leave energy in the dust.

*Economist:* Yes, I think energy plays a diminishing role in the economy
and becomes too cheap to worry about.

*Physicist:* Wow. Do you really believe that? A physically limited resource
(read scarcity) that is fundamental to every economic activity becomes
arbitrarily cheap? [turns attention to food on the plate, somewhat stunned]

*Economist:* [after pause to consider] Yes, I do believe that.

*Physicist:* Okay, so let’s be clear that we’re talking about the same
thing. Energy today is roughly 10% of GDP. Let’s say we cap the physical
amount available each year at some level, but allow GDP to keep growing. We
need to ignore inflation as a nuisance in this case: if my 10 units of
energy this year costs $10,000 out of my $100,000 income; then next year
that same amount of energy costs $11,000 and I make $110,000—I want to
ignore such an effect as “meaningless” inflation: the GDP “growth” in this
sense is not *real*growth, but just a re-scaling of the value of money.

*Economist:* Agreed.

*Physicist:* Then in order to have *real* GDP growth on top of flat energy,
the fractional cost of energy goes down relative to the GDP as a whole.

*Economist:* Correct.

*Physicist:* How far do you imagine this can go? Will energy get to 1% of
GDP? 0.1%? Is there a limit?

*Economist:* There does not need to be. Energy may become of secondary
importance in the economy of the future—like in the virtual world I
illustrated.

*Physicist:* But if energy became arbitrarily cheap, someone could buy *all
of it*, and suddenly the activities that comprise the economy would grind
to a halt. Food would stop arriving at the plate without energy for
purchase, so people would pay attention to this. Someone would be willing
to pay more for it. Everyone would. There will be a floor to how low energy
prices can go as a fraction of GDP.

*Economist:* That floor may be very low: much lower than the 5–10% we pay
today.

*Physicist:* But is there a floor? How low are you willing to take it? 5%?
2%? 1%?

*Economist:* Let’s say 1%.

*Physicist:* So once our fixed annual energy costs 1% of GDP, the 99%
remaining will find itself stuck. If it tries to grow, energy prices must
grow in proportion and we have monetary inflation, but no real growth.

*Economist:* Well, I wouldn’t go that far. You can still have growth
without increasing GDP.

*Physicist:* But it seems that you are now sold on the notion that the cost
of energy would not naturally sink to arbitrarily low levels.

*Economist:* Yes, I have to retract that statement. If energy is indeed
capped at a steady annual amount, then it is important enough to other
economic activities that it would not be allowed to slip into economic
obscurity.

*Physicist:* Even early economists like Adam Smith foresaw economic growth
as a temporary phase lasting maybe a few hundred years, ultimately limited
by land (which is where energy was obtained in that day). If humans are
successful in the long term, it is clear that a steady-state economic
theory will *far* outlive the transient growth-based economic frameworks of
today. Forget Smith, Keynes, Friedman, and that lot. The economists who
devise a functioning steady-state economic system stand to be remembered
for a longer eternity than the growth dudes. [Economist stares into the
distance as he contemplates this alluring thought.]
Act Four: Dessert

*Economist:* But I have to object to the statement that growth must stop
once energy amount/price saturates. There will always be innovations that
people are willing to purchase that do not require additional energy.

*Physicist:* Things will certainly change. By “steady-state,” I don’t mean
static. Fads and fashions will always be part of what we do—we’re not about
to stop being human. But I’m thinking more of a zero-sum game here. Fads
come and go. Some fraction of GDP will always go toward the
fad/innovation/gizmo of the day, but while one fad grows, another fades and
withers. Innovation therefore will maintain a certain flow in the economy,
but not necessarily *growth*.

*Economist:* Ah, but the key question is whether life 400 years from now is
undeniably of higher quality than life today. Even if energy is fixed, and
GDP is fixed once the cost of energy saturates at the lower bound, will
quality of life continue to improve in objectively agreed-upon ways?

*Physicist:* I don’t know how objective such an assessment can be. Many
today yearn for days past. Maybe this is borne of ignorance or romanticism
over the past (1950′s often comes up). It may be really exciting to imagine
living in Renaissance Europe, until a bucket of nightsoil hurled from a
window splatters off the cobblestone and onto your breeches. In any case,
what kind of universal, objective improvements might you imagine?

*Economist:* Well, for instance, look at this dessert, with its decorative
syrup swirls on the plate. It is marvelous to behold.

*Physicist:* And tasty.

*Economist:* We value such desserts more than plain, unadorned varieties.
In fact, we can imagine an equivalent dessert with equivalent ingredients,
but the decorative syrup unceremoniously pooled off to one side. We value
the decorated version more. And the chefs will continue to innovate.
Imagine a preparation/presentation 400 years from now that would blow your
mind—you never thought dessert could be made to look so amazing and taste
so delectably good. People would line the streets to get hold of such a
creation. No more energy, no more ingredients, yet of increased value to
society. That’s a form of quality of life improvement, requiring no
additional resources, and perhaps costing the same fraction of GDP, or
income.

*Physicist:* I’m smiling because this reminds me of a related story. I was
observing at Palomar Observatory with an amazing instrumentation guru named
Keith who taught me much. Keith’s night lunch—prepared in the evening by
the observatory kitchen and placed in a brown bag—was a tuna-fish sandwich
in two parts: bread slices in a plastic baggie, and the tuna salad in a
small plastic container (so the tuna would not make the bread soggy after
hours in the bag). Keith plopped the tuna onto the bread in an inverted
container-shaped lump, then put the other piece of bread on top without
first spreading the tuna. It looked like a snake had just eaten a rat.
Perplexed, I asked if he intended to spread the tuna before eating it. He
looked at me quizzically (like Morpheus in the Matrix: “You think that’s
air you’re breathing? Hmm.”), and said—memorably, “It all goes in the same
place.”

My point is that the stunning presentation of desserts will not have
universal value to society. It all goes in the same place, after all. [I'll
share a little-known secret. It's hard to beat a Hostess Ding Dong for
dessert. At 5% the cost of fancy desserts, it's not clear how much value
the fancy things add.]
After-Dinner Contemplations

The evening’s after-dinner keynote speech began, so we had to shelve the
conversation. Reflecting on it, I kept thinking, “This should not have
happened. A prominent economist should not have to walk back statements
about the fundamental nature of growth when talking to a scientist with no
formal economics training.” But as the evening progressed, the original
space in which the economist roamed got painted smaller and smaller.

First, he had to acknowledge that energy may see physical limits. I don’t
think that was part of his initial virtual mansion.

Next, the efficiency argument had to shift away from straight-up
improvements to transformational technologies. Virtual reality played a
prominent role in this line of argument.

Finally, even having accepted the limits to energy growth, he initially
believed this would prove to be of little consequence to the greater
economy. But he had to ultimately admit to a floor on energy price and
therefore an end to traditional growth in GDP—against a backdrop fixed
energy.

I got the sense that this economist’s view on growth met some serious
challenges during the course of the meal. Maybe he was not putting forth
the most coherent arguments that he could have made. But he was very sharp
and by all measures seemed to be at the top of his game. I choose to
interpret the episode as illuminating a blind spot in traditional economic
thinking. There is too little acknowledgement of physical limits, and even
the non-compliant nature of humans, who may make choices we might think to
be irrational—just to remain independent and unencumbered.

I recently was motivated to read a *real* economics textbook: one written
by people who understand and respect physical limitations. The book, called
*Ecological Economics*, by Herman Daly and Joshua Farley, states in its
Note to Instructors:

…we do not share the view of many of our economics colleagues that growth
will solve the economic problem, that narrow self-interest is the only
dependable human motive, that technology will always find a substitute for
any depleted resource, that the market can efficiently allocate all types
of goods, that free markets always lead to an equilibrium balancing supply
and demand, or that the laws of thermodynamics are irrelevant to economics.

This is a book for me!
Epilogue

The conversation recreated here did challenge my own understanding as well.
I spent the rest of the evening pondering the question: “Under a model in
which GDP is fixed—under conditions of stable energy, stable population,
steady-state economy: if we accumulate knowledge, improve the quality of
life, and thus create an unambiguously more desirable world within which to
live, doesn’t *this* constitute a form of economic growth?”

I had to concede that yes—it does. This often falls under the title of
“development” rather than “growth.” I ran into the economist the next day
and we continued the conversation, wrapping up loose ends that were cut
short by the keynote speech. I related to him my still-forming position
that yes, we can continue tweaking quality of life under a steady regime. I
don’t think I ever would have explicitly thought otherwise, but I did not
consider this to be a form of economic growth. One way to frame it is by
asking if future people living in a steady-state economy—yet separated by
400 years—would always make the same, obvious trades? Would the future life
be objectively better, even for the same energy, same GDP, same income,
etc.? If the answer is yes, then the far-future person gets more for their
money: more for their energy outlay. Can this continue indefinitely
(thousands of years)? Perhaps. Will it be at the 2% per year level (factor
of ten better every 100 years)? I doubt that.

So I can twist my head into thinking of quality of life development in an
otherwise steady-state as being a form of indefinite growth. But it’s not
your father’s growth. It’s not growing GDP, growing energy use, interest on
bank accounts, loans, fractional reserve money, investment. It’s a whole
different ballgame, folks. Of that, I am convinced. Big changes await us.
An unrecognizable economy. The main lesson for me is that growth is not a
“good quantum number,” as physicists will say: it’s not an invariant of our
world. Cling to it at your own peril.

*Note: This conversation is my contribution to a series at
www.growthbusters.org honoring the 40th anniversary of the Limits to
Growth study.
You can explore the series
here<http://www.growthbusters.org/home/limits-to-growth/>.
Also see my previous reflection on the Limits to Growth
work<http://physics.ucsd.edu/do-the-math/2011/09/discovering-limits-to-growth/>.
You may also be interested in checking out and signing the Pledge to Think
Small <http://www.change.org/petitions/all-of-us-pledge-to-think-small> and
consider organizing an Earth Day weekend house
party<http://www.growthbusters.org/2012/04/join-the-worldwide-growthbusters-house-party/>
screening
of the GrowthBusters movie.*

This entry was posted in
Growth<http://physics.ucsd.edu/do-the-math/category/growth/> and
tagged economics <http://physics.ucsd.edu/do-the-math/tag/economics/>,
limits <http://physics.ucsd.edu/do-the-math/tag/limits/>,
thermodynamics<http://physics.ucsd.edu/do-the-math/tag/thermodynamics/>
 by tmurphy <http://physics.ucsd.edu/do-the-math/author/tmurphy/>. Bookmark
the permalink<http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-physicist/>
.
 396 THOUGHTS ON “EXPONENTIAL ECONOMIST MEETS FINITE PHYSICIST”
-------------- next part --------------
An HTML attachment was scrubbed...
URL: <http://lists.extropy.org/pipermail/extropy-chat/attachments/20121230/9e7e9f0a/attachment.html>