Does Economics Violate the Laws of Physics? | Hacker News Reader

Does Economics Violate the Laws of Physics?

scientificamerican.com

14 pointsbrkumar10 comments

"Why should economics be a social science, because it's about stuff?" Yeah, right. For example, and I build "stuff" (from something like "bit substance", I take it?) for a living...

Economics is not related much to physics. On the contrary, it's pretty much metaphysics as its quant is money, which is socially constructed.

It is fallacious to assume that economic growth will lead to growth in energy use. Quality, not only quantity generates value. In other words, if a baker keeps baking better-tasting bread, and a piano maker keeps making better-sounding pianos, the economy will grow. Improving quality does not necessarily need extra energy.

In other words, if a baker keeps baking better-tasting bread, and a piano maker keeps making better-sounding pianos, the economy will grow.

This is true, but only to a point. Market saturation also plays a role, plus the theoretical and practical limits to quality in both of those cases. Costs do not scale linearly with quality increases. There is a limit to the quality differences people can differentiate, so at some point people will stop paying for better bread and pianos because a) they better versions are too expensive, and/or b) they can't tell the difference between that and what they already have.

How many people do you know who wish they had a piano but they can't find one that's of high enough quality?

Quite so. Here's an article about a long-running strike that recently ended at an american factory specializing in trumpets, which has been unable to compete with those made in China: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/10/25/...

I have no doubt that years of experience can lead to a superior instrument, but the market for such a device is limited to the few musicians who are able to play at a superior level. you can also see this closer to our home in the commodification of computer hardware; the resolution ability audio technology (as used in soundcards) passed beyond the threshold of human hearing ability some time ago, so competition has shifted towards features, design and branding.

I do agree with the article's suggestion that economics should adjust to the idea of energy as the fundamental quantum of value, but given the general public's poor understanding of economics it might be argued that there's insufficient demand to drive such innovation in the shot term.

The whole point of economics is studying the allocation of scarce resources. Individual economists might not believe in peak oil, but to expand this idea to say that neoclassical or chicago school economic models ignore the physical constraints of the universe is hyperbole at best.

Of course I doubt many economic models take the life expectancy of the sun into account; but to say that neo-classical models can't account for running out of oil is frankly ridiculous. As oil gets more expensive other means of energy production (nuclear, solar) become more attractive, and/or the cost of energy goes up. Never mind including technological progress as an "input" into your model.

This isn't violating any laws of physics instead it is economists not taking into account well economics... companies vested in energy aren't going to say that they aren't going to have energy in the future, same goes for oil and car producers and it actually ends up trickling down.

Reminds me of Albert Barlett's Arithmetic, Population and Energy talk:

http://www.youtube.com/watch?v=9znsuCphHUU

The community of hackers seems to be in as much denial about impending energy shortages as classical economists. A shame, because hackers are good at finding novel solutions.

On the contrary, hackers probably understand better than most how novel solutions can make a seemingly insurmountable problem disappear. For instance

  - irrigation greatly improved agriculture in arid regions
  - drought resistant wheat solved hunger for billions of people (Borlaug)
  - automatic telephone switches prevented the US from being a nation of telephone operators
  - sewers drastically reduced water-borne illness and made cities liveable
  - cars prevented the huge waste problem that millions of horses caused in cities

Similarly, price signals have made people change habits before, like how rising labor costs made the modestly wealthy do their own housework as they could no longer afford servants or how people who love the land move to cities because the prospects are better.

Sure, the impending peak oil crisis looks like a problem, but not only do I expect that the combination of ingenuity and prices will produce a change, people like Amory Lovins at RMI have already shown how to profitably slash energy use at low oil and energy prices.

"The community of hackers seems to be in as much denial about impending energy shortages as classical economists. "

On what do you base this claim?

Take Startup School. Did you hear anybody mention anything about scarcity?

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