Rifkin on the entropy bill and economics

Continuing from this post, Rifkin talks about the entropy created by fossil fuels. Yes, using them as an energy source also creates an 'order' on one side of the equation in terms of electricity that runs so many useful things. But fossil fuels are a finite resource, and more importantly they create a huge entropy bill on the other side of the equation. A bill quite unlike that created by renewable energy sources. The following is from one of Rifkin's interviews where he incorporates entropy into economics. The lead-in says this:

"In his book, Mr. Rifkin takes on Adam Smith, challenging classical economic theory with the contention that it does not take thermodynamics into account. The Third Industrial Revolution presents economic theory that incorporates entropy and the relationship between commerce and the planet."

Rifkin:

"Modern economic theory was developed in the Enlightenment.  What was a rage at the time was Newtonian mechanics.  And it was a metaphor for everything because every new emerging discipline wanted to use Newtonian physics to get a sound basic framework for legitimacy.  So, all the metaphors were based in Newtonian physics.

"And, of course, the classical, neoclassical economic theories are based on that.  For each action is an equal and opposite reaction.  That’s the pendulum of the marketplace, and on and on and on.  They use all sorts of Newtonian metaphors.

"The problem is Newton’s physics don’t tell you a damn thing about economic activity.... The problem is economics is all about how energy flows, and it’s governed by the laws of thermodynamics, which weren’t discovered until the latter part of the nineteenth century by engineers and chemists studying energy flows.

"By that time, economics was already ossified – didn’t want to hear about it.  But economic activity is all about the irreversible passage of low entropy energy inputs whether it’s embedded in the material form in the earth – like fossil fuels, or rare Earths, or in energy by itself.  And it’s how that energy in both material and energy form is converted to utilities for society and then they end up back in nature in a degraded state to be recycled or replenished.

"So, the laws of thermodynamics really govern economic activity, but almost no economist ever studies the law of thermodynamics. They don’t have a clue.  The engineers, the chemists, the biologists, the architects, the urban planners, the physicists – all of those professions, which actually create economic activity, they do so from a thermodynamic lens.  So there’s a complete disconnect between them and the economists.

"I’ll just give you one example. GDP – we think of gross domestic product as a store of wealth we generate. John Locke, an early Enlightenment philosopher said, “Look, ten acres of land in the commons that’s doing nothing is of no value.  It’s waste.  It’s only when you harness that land with your labor and transform it into productive property that you’ve created wealth.”  He got it upside down.  But that’s the basic Enlightenment theory, that we take nature’s waste, add labor to it, and ingenuity, and we turn it into productive wealth.  He got it backwards.

"Thermodynamically, economic activity is taking nature’s valuable, low-entropy, high-energy capability in energy form or energy based in material form.  We transform it into goods and services.  And every time we transform it we lose more energy in the transformation than we gain in the product or service.  And then the product and service degrade back into the environment.  And part of it can be recycled, but at a cost.
So GDP is not a measure of your wealth.  It’s a measure of the temporary value that we have been able to engender at the expense of the value we’ve lost in nature and the entropy bill we’ve created.  So if GDP is a measure of temporary value and it’s a measure of our debt that we build up with a natural environment.

"There was a chemist at the turn of the century – Frederick Soddy, Nobel Laureate, early 1900s.  He was the first to show the relationship between thermodynamics and economics – he said “These are the laws that govern economics.”  No one paid any attention to him.

"I think that the economic theories that reinforced the first and second industrial revolution are dysfunctional.  They actually don’t give us a realistic assessment of our past, present and future.  They’re not a helpful guide.  Some of the insides will be retained.  They’ll be retained and we’ll find a synthesis to retain the insides of classical, neoclassical theory, placing it within a thermodynamic frame, a scientific frame, and we’ll begin to create a new synthesis that is different from classical, neoclassical economic theory, as it was different from the ‘just price’ theory of the late medieval age.

"Everyone’s talking about balancing the budget.  The real global financial crisis is connected to the oil crisis.  What we’re paying now is the real debt.

"Every society, early on, creates a new energy-communication mix.  At the early stage before scale-up, the energy-communications’ expensive.  Then it’s scaled.  Then it’s adopted.  Then the prices get cheaper.  Then it plateaus.  Then the entropy builds up for the past activity.  Then prices go up.  The cost for the entropy bill goes up.  And the civilization eventually collapses or dies out.  That’s the history of civilization.

"Some of the guys that write these books, they have never really captured this – they’re good anthropologists, but they haven’t really looked at economic history.  That’s how it happens.  And so that’s what happening in the second industrial revolution now – it’s on the down side of its bell curve.  And the key is you’re always constantly building up a debt against nature.  And the question is: how do you find a communication-energy regime that allows us to live more in tandem with the rhythms of the planet so that we can learn to live sustainably and not produce and consume faster than we can repay the debt by allowing nature to replenish the stock its best it can?"