Economics and Physics

Nathaniel Gronewald reports on a somewhat esoteric controversy:

The financial crisis and subsequent global recession have led to much soul-searching among economists, the vast majority of whom never saw it coming. But were their assumptions and models wrong only because of minor errors or because today’s dominant economic thinking violates the laws of physics?

A small but growing group of academics believe the latter is true, and they are out to prove it. These thinkers say that the neoclassical mantra of constant economic growth is ignoring the world’s diminishing supply of energy at humanity’s peril, failing to take account of the principle of net energy return on investment. They hope that a set of theories they call “biophysical economics” will improve upon neoclassical theory, or even replace it altogether.

Economists are not entirely blind to this point. See pages 256-257 of Gregory Clark’s

The second feature is that, unlike inorganic systems in which the baseline rate of productivity growth is zero, in organic systems without any innovation efficiency growth is negative. Weeds and pathogens are constantly adapting, through the blind forces of natural selection, to reduce the productivity of of crops and animals. Indeed some modern grain crops, such as rye, are believed to have evolved within crops of barley and oats as crop weeds. Under the harsher growing conditions of northern Europe rye proved to be more productive than the original grains, and it was eventualy cultivated deliberately.

The inherent tendency of productivity to decline in farming systems is revealed most dramatically in such episodes as the Irish potato famine of 1845 and the Phylloxera attack on grape vines in Europe in the 1860s. Thus the rate of measurable productivity growth in the farm system in England before the Industrial Revolution need not imply an absense of innovation. The move from a 0 percent rate of productivity advance in the years before 18000 to a 0.3 percent rate of advance in 1800-60 may seem like an important phase change. But suppose this instead represents, for example, a change from a rate of innovation of 0.4 percent per year to one of 0.7 percent, being countered by a constant natural degradation of technique of 0.4 percent per year. Then the upward movment of innovation rates during the Industrial Revolution would be less dramatic and would seem to be less of a change in regime.

The thing of it is that our “inorganic” post-agricultural economy isn’t really inorganic at all. The fossil fuels that have replaced human and livestock muscle as our main sources of energy are still part of the organic chain found in nature. Thus some these fuels are being consumed at a rate far faster than they’re produced, and nature’s carbon cycle is being thrown out of whack. This operates on a much longer timeline than the kind of natural processes that undermine static agriculture, but it’s still out there. However, with sufficiently rapid innovation you can pull ahead of the curve.