Steve Keen, Economics, the environment and thermodynamics.

Interesting stuff. Thanks for the reference.

The first few minutes of the video show how standard economic theory fails to take thermodynamics into account. Much of the remainder is an exposé of poor methodology in predicting the economic impact of climate change.

Economic systems are supposedly cyclic, such that consumers, production, government and finance form a closes system. This is of course a convenient lie. Production can only occur by consuming energy from outside the system - the first law of thermodynamics - and by increasing disorder elsewhere - the second law. Classical economics ignores this as outside it's domain.

And that is why it is incapable of providing a usable analysis of the effects of economic activity on the environment.

Quoting Banno

The first few minutes of the video show how standard economic theory fails to take thermodynamics into account.

This reminds me of this classic:

Quoting Creationist who almost discovers the sun

One of the most basic laws in the universe is the Second Law of Thermodynamics. This states that as time goes by, entropy in an environment will increase. Evolution argues differently against a law that is accepted EVERYWHERE BY EVERYONE. Evolution says that we started out simple, and over time became more complex. That just isn't possible: UNLESS there is a giant outside source of energy supplying the Earth with huge amounts of energy. If there were such a source, scientists would certainly know about it.

Well, credit where credit is due: this "radical economist" is one step ahead of the creationist-who-almost-discovered-the-sun: he did notice the "giant outside source of energy" up in the sky. Now if he could also spot the giant outside energy sink, he would be golden.

Is waste heat produced by human activities important for the climate?

Quoting Max-Planck-Institut für Meteorologie

No. The sun provides almost 10,000 times as much energy to the Earth’s surface per time unit and unit area, namely 342 Wm-2, as we emit into the atmosphere or waters through industry, transport, housing, agriculture and other activities by using fossil fuels and the nuclear fuel uranium (0.03 Wm-2).

Quoting SophistiCat

Is waste heat produced by human activities important for the climate?

No, it isn't. That's not were Keen went. He shares systems that begin to have energy sources as input and that acknowledge overall disorder as output, suggesting they may be an improvement on present models; however the thrust is that in not taking the physics into account the economists have misled themselves. He's working on a link between economics and ecology.

Quoting Keen

Forecasts by economists of the economic damage from climate change have been notably sanguine, compared to warnings by scientists about damage to the biosphere. This is because economists made their own predictions of damages, using three spurious methods: assuming that about 90% of GDP will be unaffected by climate change, because it happens indoors; using the relationship between temperature and GDP today as a proxy for the impact of global warming over time; and using surveys that diluted extreme warnings from scientists with optimistic expectations from economists. Nordhaus has misrepresented the scientific literature to justify the using a smooth function to describe the damage to GDP from climate change. Correcting for these errors makes it feasible that the economic damages from climate change are at least an order of magnitude worse than forecast by economists, and may be so great as to threaten the survival of human civilization.

Quoting Banno

Classical economics breaches the first and second laws of thermodynamics by treating the economy as a closed system that increases in order.

Classical economic theory also assumed rational individual actors and minimal government interference. Thermodynamics may be logical (rational), but the regulation (natural laws) is inherent in the system. The human factor in economics is a wild card. And, I suppose it's also an irrational element in Earth-based thermodynamics, resulting in global warming. Fortunately for us, over the long haul, the erratic path of both systems, tends to balance-out at a moderate mean. Let's hope, anyway. We don't really want to eradicate humans from the planet, do we? :cool:

Cheers. I'll take up this for further consideration:

Quoting Gnomon

Fortunately for us, over the long haul, the erratic path of both systems, tends to balance-out at a moderate mean.

The assumption of continuity is one the physics undermines - tipping points and phase changes, rather than smooth curves.

It does not look as if the "regulation" is aware of the significance of such.

Apples and oranges?

The only metric governing the behavior of the above are productivity and efficiency increases. Thus, the market takes care of itself, and has no overriding natural law such as thermodynamics governing a differential in entropy. Even then, demand can still mandate a larger increase in supply due to expectations, so that would violate thermodynamics of the economy.

I mean, it's also hard to argue that we can take into account the recently hotly debated externality of climate change into our equations. For example, try and define a common unit of cost of each ton of carbon emissions emitted into the atmosphere that would (under ideal circumstances) be agreed on by most rational actors. You can do that if you're all under the same banner as the EU does; but, how can the EU convince China that their cost of per ton of carbon emissions is equal to theirs? (This issue of agreement can only proceed from legal agreement or consensus on an issue, and hence is not in the scope of economic analysis to direct or confront the issue, and by definition this would be a tragedy of the commons issue).


Quoting Banno

Classical economics breaches the first and second laws of thermodynamics by treating the economy as a closed system that increases in order.

You might not be familiar with the economic saying "et ceteris paribus", all other things held equal. Again, you can't just assume that every externality is taken under consideration.

Quoting Shawn

Thus, the market takes care of itself,

That's rather the issue in question, isn't it? Is the market taking care of itself a conclusion, or an assumption?

Quoting Banno

That's rather the issue in question, isn't it?

I don't think it can be persuasively argued on until there are other motivations other than profits, value, or expenses. Markets adhere by a common agreement in law and jurisprudence of a country. So, I don't think the system can take care of itself, as traditionally understood.

Quoting Banno

Is the market taking care of itself a conclusion, or an assumption?

It's an assumption of laissez-faire economics, which has been time and time again been refuted by market failures, and poor accounting on behalf of rational actors operating in the cosm of "the greater world", and not only individual nations.

Reply to Shawn Did you watch the video? Keen claims that his criticism of DICE are independent of his criticisms of classical economics, and indeed they are mostly methodological.

It appealed to my prejudices, so I'm interested in what sort of defence might be mounted by classical economics.

Quoting SophistiCat

Creationist who almost discovers the sun

That seems to be a real comment. Wow.

Thanks - think that made my day.

Quoting Banno

The assumption of continuity is one the physics undermines - tipping points and phase changes, rather than smooth curves.

Of course. Short term economic or evolutionary paths tend to look like the first chart below. But Long-term paths typically vary around a fairly constant mean -- maybe even sloping upward, as in chart 2. Although global warming currently looks like a hockey-stick, over 10,000 years the system has balanced itself well enough to keep Life alive. But now, it seems that a little global government intervention/regulation may be necessary to get us back on track. Dystopian visions of economic/thermal/ thermo-nuclear apocalypse may be premature. Have a little faith in humanity -- we haven't bombed ourselves into oblivion yet . . . :cool:

1. SHORT TERM ECONOMICS

2. LONG TERM ECONOMICS

3. GLOBAL WARMING UPS & DOWNS

Freshman classes in global warming teach that the long-term analysis and planning necessary to deal with AGW isn't in our present skill set as a species. We've just never had to plan centuries out. So with assessing economic impact, were used to maybe looking 10 or 20 years out, but the forecast for the next 20 years of climate change isn't too impressive. It's just greater volatility.

A neoliberal would say we should let free markets form our response. This all centers around how information is utilized. A neoliberal says that in free markets, the mass of diverse information around the world intimately influences practices at local levels with efficiency that central planning can't accomplish. In the face of all the unknowns surrounding climate change, central planning should be avoided at all costs.

I'd really like to know how the Chinese government thinks about it.

Quoting Gnomon

Have a little faith in humanity

Hmm. Having met them, I'm not so confident.

There's a neat example in the video - making it up from memory, an economist will say that an ice skater on ice at -10? will be, say, 2ms?¹ slower than one on ice at -8?°... and 4ms?¹ slower than one at -6?; and that therefore by heating the ice to 2? the skater will be able to go 12ms?¹ faster.

There's a problem that is not part of the economist's calculation. They need to talk to a physicist.

And that's the point, I suppose - that representations to government need wider information.

Quoting Banno

There's a problem that is not part of the economist's calculation. They need to talk to a physicist.

I vaguely remember from long ago an economics book (New World of Economics, 1975 ???) that recommended an approach more like Physics. But the problem with such a model is that physical systems are better-behaved and more predictable than chaotic human groups. In fact, I suspect that some economists tried to make models based on physics, and failed to get reliable results. Yet again, their Bell-curve models didn't fit the messy realities of collective and individual human nature.*1

In Freakonomics (2003) the authors said "Why the conventional wisdom is so often wrong . . . How "experts" --- from criminologists to real-estate agents to political scientists --- bend the facts . . . Why knowing what to measure, and how to measure it, is the key to understanding modern life . . . That almost sounds like a reference to physical measurements. But it would actually be more like the meta-physical measurements of Psychology. :joke:

*1. Note to self in front page of the book : "When the numbers (values) are removed from the mathematically derived chart, what is left is a pure logic diagram, showing abstract relationships. From this we can derive general principles which can be applied to specific cases and the numbers plugged back in". So young, so naive. Maybe they hadn't perfected Chaos Theory back then. Or Black Swan theory. :grin:

Quoting Banno

No, it isn't. That's not were Keen went.

Quoting Keen

This is because economists made their own predictions of damages, using three spurious methods: assuming that about 90% of GDP will be unaffected by climate change, because it happens indoors; using the relationship between temperature and GDP today as a proxy for the impact of global warming over time; and using surveys that diluted extreme warnings from scientists with optimistic expectations from economists.

So, you are saying that Keen's points have nothing to do with elementary thermodynamics, and that smug rant at the beginning of the video was just a strained metaphor? OK. I'll take your word on the soundness of his criticisms, as economics is not my forte.

Quoting SophistiCat

smug rant

SO you liked it?

Quoting SophistiCat

So, you are saying that Keen's points have nothing to do with elementary thermodynamics, and that smug rant at the beginning of the video was just a strained metaphor?

I didn't watch the video yet and just skimmed through the powerpoints, but his critiques of Nordhaus that most of the video seems to be based on focuses on the economics and isn't directly related to thermodynamics analysis (paper linked below). Keen is an important Post-Keynesian theorist and not a crank, but he does have a penchant for a polemical public persona. Either that, or it could just be that the first part of the video draws from Ecological Economics, a heterodox sub-field which I'm kind of skeptical of tbh.

https://www.tandfonline.com/doi/full/10.1080/14747731.2020.1807856

There is free energy put in the ordered structures in the production process. The increase in order is compensated for by heat. Like well ordered organisms can form in good relation with the second law, so can the products created by men. The creation of order in factories, the factories themselves, machines for production, everything together created by men, takes the needed energy out of the Earth (and indirectly from the Sun). There is waste heat to compensate for the order increase. It's not so much the increase in order that causes natural chaos. It's the replacement of the natural order and destruction of natural order to turn it into goods in factories that does the damage.

What he talks about the violation of the second law? Nonsense! You put energy in the production of goods. Order increases. In the process, heat compensates for the order increase.

Quoting Saphsin

and not a crank,

Considering physics, he's a crank.

Reply to Saphsin I took the first part as pointing to the sort of modelling in which he is engaged, before launching into the critique.

Reply to Raymond Reply to Raymond To be clear, he doesn't say the economy breaks the second law, but that classical theories ought take it into account.

Reply to Banno

Is it just about ignoring waste heat? Waste heat is not dramatic. If all the energy generated by man since, say, the industrial revolution would be thrown in the atmosphere, there would nothing be wrong now.

Quoting Raymond

Is it just about ignoring waste heat?

No.

Reply to Banno


But that's what he states initially. When he discusses the cooling tower.

Reply to Raymond I don't believe so. He does use it as part of an explanation - he is talking to economists. He then shows how he has played with feeding energy into the Cobb-Douglas production function, which I take to be some examples of how economic modelling might begin to take physics into account.

Note that the critique of climate modelling is not reliant on this. It stands seperate.

[quote=Banno]Classical economics breaches the first and second laws of thermodynamics by treating the economy as a closed system that increases in order.[/quote]

That's why the mind is nonphysical! It can create entities/systems (e.g. economic system) that clearly violate physical laws.

Quoting Keen

Forecasts by economists of the economic damage from climate change have been notably sanguine, compared to warnings by scientists about damage to the biosphere.

Is this right? I didn't know about, or never paid attention to, opinions by economists about climate change.

The most concerning thing here is Keen's criticism of the DICE model, for "a priori assuming that 87% of the economy will be unaffected by climate change, misrepresenting contributions from natural scientists on tipping points, and selecting a high discount rate".

Quoting Banno

That's rather the issue in question, isn't it? Is the market taking care of itself a conclusion, or an assumption?

You have to give tangible incentives for business organizations to reduce emissions -- namely, measurables in relation to their output (this is the intensity emission reduction). This might be the only meaningful measure for those entities. Contrast that with absolute emission reduction.

So, maybe it's an assumption that the market will take care of itself, and thermodynamics, in conclusion gets taken care of?

Quoting Caldwell

So, maybe it's an assumption that the market will take care of itself, and thermodynamics, in conclusion gets taken care of?

Interpersonal Market Economics, by contrast to Top-down Government Planning, is like Democracy : it assumes that erroneous or extreme ideas (irrational elements) will neutralize or normalize each other. And, as Winston Churchill once said “democracy is the worst form of government – except for all the others that have been tried.”

Monetary Economics is not a logical physical system, like Thermodynamics; it's a passionate Prey versus Predator ecosystem that sometimes gets out of balance due to selfish human interference. Fortunately, some altruistic humans are working to offset the imbalance by providing a targeted counter-force (e.g. reintroducing wolves into Yellowstone). But even that well-intentioned response may be based on incomplete information about the state & trend of the system. So, we may have to just get used to an imperfect & erratic Economy & Ecology, until Economists become omniscient, or Human monetary interactions become more predictable and controllable, like Physical energy exchanges. :cool:


“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.” This quotation is used to illustrate the self-centeredness of men and thereby to motivate the market as the best allocation mechanism.
___Adam Smith
https://faces-online.nl/en/the-godfather-of-economics-adam-smith-in-five-quotes/

Quoting Gnomon

Monetary Economics is not a logical physical system, like Thermodynamics; it's a passionate Prey versus Predator ecosystem that sometimes gets out of balance due to selfish human interference.

In that case, let's shoot for absolute emission then, which would not excuse production output as an anchor for reducing or increasing CO[sub]2[/sub]. As a business organization, you are given a percentage of reduction.

Quoting Gnomon

“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages.”

Good quote. So true.

Reply to Caldwell

I understood the criticism to be that classical economics treats the market as a closed system when it isn't. That is, the market price for carbon emissions - historically effectively zero - is far removed from the environmental cost - potentially enormous.

Reply to Banno
Carbon emission per American is about 20 metric ton.
Or total emission in America is about 5 billion metric ton. Let's say $50 per metric ton is the cost of carbon emission. That's $250 billion in social cost per year -- health, decreased productivity, the ocean, the air, etc. You don't think that's a lot? Europe's cost is about €71.

Quoting Caldwell

In that case, let's shoot for absolute emission then,

Let's not give-up on Economic or Ecological relative regulation. Natural systems are inherently self-regulating by deterministic Genetics. But in human Cultural systems, FreeWill throws a monkey wrench in the gears. That's why cannibalistic humans would quickly go extinct in a dog-eat-dog world, without Social Contract laws, regulated by self-determining Reason. :joke:

PS___Let's not debate Freedom from Determinism here. That's a topic for another thread.

Quoting Gnomon

Let's not give-up on Economic or Ecological relative regulation. ....
PS___Let's not debate Freedom from Determinism here. That's a topic for another thread.

I think you misunderstood my response. Both the absolute emission and intensity emission are technical terms used in economic/regulatory measure of carbon emission. It has nothing to do with philosophy. Absolute emission reduction being that the reduction is based on total carbon emission, say of a country, and from that they determine a business organization's percentage of reduction, say 10%. (This is simplifying it). Intensity emission reduction, as I already explained previously, is emission reduction based on economic output of a business organization.

Now I haven't read up on ecological relative regulation you alluded to. I'm not sure what that is. Maybe that is another model that we could discuss.

Quoting Caldwell

Now I haven't read up on ecological relative regulation you alluded to. I'm not sure what that is. Maybe that is another model that we could discuss.

Sorry. I wasn't familiar with the technical term "absolute emission". It sounded like "no regulation -- emit all the pollution you want". So, my tongue-in-cheek response was to tone it down to "relative ecological emission regulations". It's not an existing method of regulation, but merely an admonition for moderation in both "emission of pollution' and "regulation of emission". Since I don't know what I'm talking about, I'll back-off now. :joke:

Quoting Gnomon

It sounded like "no regulation -- emit all the pollution you want".

:grin:

What happened to @Banno?

Reply to Caldwell Still here. I wasn't sure of the import of Reply to Caldwell, and didn't respond.

Did you want something?

Quoting Banno

Did you want something?

Yes.

I don't buy Keen's criticisms against Nordhaus simply because I myself couldn't appreciate the carbon emission damage except when quantified in monetary value. Why? Because climate change is a very, very slow death. It's hard to appreciate you're dying in a water set at a negligible temperature increments.

But there's much more compelling reason than this. The production of carbon emission is mostly due to economic activities. So emission reduction would have to happen as a consequence of, not as a solution to, the damage done to the environment and atmosphere. I hope you get the nuance of this thought.

True, scientists could factually say, "illnesses or deaths by the hundreds of thousands", or "five towns will be underwater in the next 5 years". And I'm sure most of us could understand and fully grasp what those mean. But I'm also guessing we would fail to understand the trade-off we have to accept.

Quoting Caldwell

But there's much more compelling reason than this. The production of carbon emission is mostly due to economic activities. So emission reduction would have to happen as a consequence of, not as a solution to, the damage done to the environment and atmosphere. I hope you get the nuance of this thought.

"So emission reduction would have to happen as a consequence of, not as a solution to, the damage done to the environment and atmosphere."

I don't see this. You have:

• Economic activity leads to carbon emissions, which in turn leads to environmental damage.
• Hence the damage done to the environment leads to emissions reduction.

Or should that be:
[*] Hence the damage done to the environment ought lead to emissions reduction.

There's some steps missing.

Quoting Banno

Economic activity leads to carbon emissions, which in turn leads to environmental damage.

Ah. No, you're getting ahead of yourself. Remember, I said "consequence of". This is not a logical necessity, as you're trying to portray.

Quoting Banno

Hence the damage done to the environment leads to emissions reduction.

Or should that be:
[*] Hence the damage done to the environment ought lead to emissions reduction.

No and no. Remove the "hence", and remove the "leads to". Just scrap the whole statement.

Quoting Caldwell

Just scrap the whole statement.

Right.

No, not seeing it. How does the damage done to the environment lead to emissions reduction?

So as the Earth becomes uninhabitable, the emissions will reduce?

Quoting Banno

So as the Earth becomes uninhabitable, the emissions will reduce?

Yes. There will be no more humans to sustain the exhaust of carbondioxide or to inflate economy. Emissions of all poisons will be zero, unless some form of AI will linger on after us. Given the fact that AI's are not capable of autonomous existence, the logical conclusion is that emission will reduce.

Damage done to nature ("the environment") is the cause of the reduction in a teleological approach. Cause and effect inversion.