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Economics vs. Physical Science

Discussions about the economic and financial ramifications of PEAK OIL

Economics vs. Physical Science

Unread postby Duende » Sun 28 Nov 2004, 13:48:32

I just learned about peak oil two weeks ago and since then I have been completely consumed by the subject. I just got through The Party's Over and now I'm really concerned.

Anyway, there's a part of the book that attempts to explain how money is essentially just a concept based on debt and the assumption of unlimited economic expansion.
It goes on to explain that resources are really the things of value. Can someone break down the conflict between economics and physical science in regard to peak oil?

It seems to me that pretty much no one disputes that peak oil is inevitable and will occur within a relatively narrow range of years. However, the real conflict arises when discussing the impacts. Economists generally believe that the market will adjust and replacements will be provided. Scientists generally believe that oil becomes harder to extract as the tipping point is reached, and less cost effective.

Can the argument over peak oil be broken down as economic versus scientific reasoning? Are these schools of thought mutually exclusive?
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Re: Economics vs. Physical Science

Unread postby MonteQuest » Sun 28 Nov 2004, 13:52:34

Duende wrote: Can someone break down the conflict between economics and physical science in regard to peak oil?


In a nutshell, our monetary system is based upon infinite growth in a finite world. Do a site search on economics and you will find several threads that delve into the issue you pose in great depth.

MQ
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Unread postby marek » Sun 28 Nov 2004, 14:46:21

Neoclassical economics and physical science are mutually exclusive. On the other hand, neoclassical economics is not the only school of thought (although given the vested political and business interests, it is the dominant one). The school of thought that is in complete accord with the physical sciences is called ecological economics. It grew out of the research of Nicholas Georgescu-Roegen, an economist who first realized that the neoclassical worldview violated the entropy law. His book, The Entropy Law and the Economic Process, created the basis for ecological economics. If you are interested in this, I recommend "Beyond Growth" by Herman Daly, "An Introduction to Ecological Economics" by Costanza et al and "The Growth Illusion" by Richard Douthwaite.
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Unread postby savethehumans » Sun 28 Nov 2004, 21:06:21

Physical Science: Peak Oil means half the available oil is gone. The days of cheap, light oil are at an end. The extraction of what's left will get harder and harder, until it isn't economical to pump it anymore. Then, no more oil for us.

Economics: Less oil = more demand = the market will see to it that there will so be oil, even if there isn't any.

Best Reader's Digest Condensed Version I can come up with. Hope it helps you.
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Economics

Unread postby pacingtime » Tue 15 Aug 2006, 11:15:03

I strongly believe that we will encounter a declining production of oil whether now or in the coming century, either way the problem will surface.
The economy will function, as it always does. Maybe not on the global scale of today, but there will be trade, there will be currencies and most likely there will be a re-emerging of different industries to replace what will be lost.

Most people are continual forecasting short term 5 10 20 years, the problems and solutions that we are faced with are 50 100 and 500 year problems. The coming crisis can be written : A Reorginization of the global economy in the event of a long term energy shortage.
Theres ninish major industries that come into focus in the coming events. All of these industries are intwined with each other and are very hard to seperate. In the order of first to be effected industries...( predictions are always sketchy)
1 Transport
planes, boats, trains, and personal vech.
2 Energy
3 Banking
a dispropertionate lose of accumulated wealth
using recession to control consumption
4 farming
5 government taxation
possible global loan defaults
inability to fund programs
dissapperance of taxation income
possible tariff wars
6 loss of tech sector
7 housing collapse
re orginization
some see the end of suburbia, there is another way to look at suburbia that I haven´t seen noted, but its on the lines of establishing a village culture of america, of course its not possible for all suburbs. But there are those that have been placed on or near fertile farm land. The greatest problem for these people to except and overcome will be lifestyle change and adaptation. And of course a down scaling of size, not only in houses but in body.
8- labour through population
loss of cheap eastern labour
eastern unemployment
re allocation of labour to rural districts geared towards food production
9 reestablishment of old industries
....
train, sailing, clothing,
really thing that is brought from the east now is going to have to be replaced.... simple things like plastic will... alder trees and wood cratess
food storage
the glass industry

All the industries will face certain stresses and either collapse and be reorganize of be able to maintain themselves in the new economic stress that they´ll be faced with. Some areas of the economy may disappear, not to return for a hundred years.
But...maybe theres a miraculous solution awaiting all and I will eventually get my flying car, but I´m not holding my breath.
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Re: Economics

Unread postby master_rb » Tue 15 Aug 2006, 14:42:48

what you wrote is correct, trade will always be there but the economy as a whole will collapse and will need to start from scratch as in 1929 if they don't solve the energy problems soon enough which i hope they can do


capitalism relies on growth, it can get through with one or two years of stagnation (as a whole again not a single country, a single country with some help from outisde can go on much longer)

i think earth has enough time and knowledge to overcome the bumps facing us
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The View from Les Houches: Thermodynamics vs. Economics

Unread postby AdamB » Mon 12 Mar 2018, 15:14:59


School of Physics in Les Houches, France, March 2018. Juergen Miknes shows some of the concepts that he has developed in his parallel analysis of thermodynamics and economics. It is a remarkable synthesis that you can find described in detail here. In the slide above, he suggests to replace the Cobb-Douglas function, commonly used in economics, with a function based on the concept of Shannon's entropy. I am not sure of a number of things in Miknes' work, in particular the idea of equating (in some ways at least) the growth of entropy with the growth of production. Nevertheless, it is a fascinating work. Nevertheless, Miknes was strongly challenged by an economist who didn't like his field invaded by another one of those pesky physicists. So far, economists have been able to keep physics away from their secluded garden and continue


The View from Les Houches: Thermodynamics vs. Economics
Peak oil in 2020: And here is why: https://www.youtube.com/watch?v=2b3ttqYDwF0
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Re: Economics

Unread postby yportne » Mon 12 Mar 2018, 22:33:27

http://webpage.pace.edu/dnabirahni/rahn ... roblem.pdf Google "Georgescu-Roegen" Including "Fourth Law of Thermodynamics"
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Re: Economics

Unread postby radon1 » Wed 14 Mar 2018, 08:40:03

Cobb-Douglas is not deterministic, it is descriptive. So it is no issue to change it to another form that produces the same result qualitatively. And apparently it does, as can be seen on the charts in the picture.

The problem with Cobb-Douglas is that it is based on the concept of capital that is not defined anywhere. So, they put a number in their formula, call it "capital", and try to explain things using this formula while the "capital" itself is not explained anywhere. And the physicist just changes the exponential function for logarithms for giggles without addressing the real issue.
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Re: Economics vs. Physical Science

Unread postby Outcast_Searcher » Wed 14 Mar 2018, 11:44:57

I'm not sure what all the uproar is about.

It seems to me, that entropy is not being tied to production in a fundamental scientific way. When false assumptions are made in doing that, you get a mess like the ETP MAP.

OTOH, if economic production functions such as Cobb-Davis are developed without any rigor (i.e. solid underlying foundation), at the end of the day, their fundamental usefulness might well be more luck (looked OK so far using some datasets) than being anything fundamentally insightful over a broad range of circumstances.

Definitions. Matter. A. Lot.

Whenever ANYTHING proposed to be a theory or knowledge skips the step of providing a solid foundation including all key formal definitions, the lack of rigor is implied. It generally shows sloppy thinking.

When using that sort of thinking to try to say something significant about merging two complex disciplines -- how likely is the result to be anything approaching a basic "truth"?

Of course, if such ideas were introduced with a clear, up front admission of their limited scope, they'd be less likely to receive awards, grants, fame, widespread use, academic titles, etc. So there's that. :roll:
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Economics vs. Physical Science

Unread postby dissident » Wed 14 Mar 2018, 12:55:04

Capital is potential human effort and potential machine operation. By itself money has not meaning. It is the faith in money that allows those with lots of it to buy the effort of humans both direct and indirect (products). There is no escaping physics. Human psychology including irrationality does not result in magical circumvention of physical laws. Expended capital trickles down to providing energy for humans (food and transportation).

It is the concept of value that is irrelevant. A big hang up of Marx was "value". It does not matter whether it arises from personal desires or collective good. It is a spurious variable that is not causal in any way. Whatever motivates humans, they have to burn energy and shuffle mass to achieve anything. So the heat engine model of the human economy is by far the most realistic one. Human activity generates entropy by literally burning resources. Buildings and products are only minor locally produced anti-entropic entities from a vast pool of entropy increase. Economists are totally lost on this point. They think that humans spontaneously create anti-entropic entities through mere effort. No, you hacks, humans increase global entropy to live.
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Re: Economics vs. Physical Science

Unread postby yportne » Wed 14 Mar 2018, 13:24:51

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Re: Economics vs. Physical Science

Unread postby Outcast_Searcher » Wed 14 Mar 2018, 14:46:38

dissident wrote:It is the concept of value that is irrelevant. A big hang up of Marx was "value". It does not matter whether it arises from personal desires or collective good. It is a spurious variable that is not causal in any way. Whatever motivates humans, they have to burn energy and shuffle mass to achieve anything. So the heat engine model of the human economy is by far the most realistic one. Human activity generates entropy by literally burning resources. Buildings and products are only minor locally produced anti-entropic entities from a vast pool of entropy increase. Economists are totally lost on this point. They think that humans spontaneously create anti-entropic entities through mere effort. No, you hacks, humans increase global entropy to live.

You can't just throw words around like "entropy" and "value" and claim one matters more than the other, unless you are very specific about the timeframes you're talking about. So in this case -- specifics instead of definitions, but still, details matter.

As various folks like ROCKDOC have stated very clearly and (IMO) convincingly, entropy doesn't matter (to humans) in the short to moderate term, compared to value. Humans worrying about this quarter, decade, generation, lifetime, or even millennium are NOT thinking in terms of the heat death of the planet (MANY orders of magnitude longer). As I keep pointing out, since you can't get the vast majority of humans to behave rationally enough to intelligently plan for their old age (a 100% probability if they don't die young), I think it's safe to say that for economics vs. worrying about entropy destroying or even greatly hurting humanity -- the time scale 99.999% of humans are going to focus on doesn't bring entropy meaningfully into play. OTOH, economics is clearly crucial to the vast majority of human behavior -- re survival and happiness. (i.e. both Maslow and common sense says you can't find self esteem, much less "self actualization", if you're starving or freezing).

I haven't seen anyone on this site seriously argue that the long term physical concept of entropy isn't true or isn't valid, or doesn't matter in the LONG run. Only that economic value (respectfully, despite what you're saying about it being "irrelevant") matters FAR more in the timeframes in which humans care about in the vast majority of their practical decision making.
Given the track record of the perma-doomer blogs, I wouldn't bet a fast crash doomer's money on their predictions.
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Re: Economics vs. Physical Science

Unread postby rockdoc123 » Wed 14 Mar 2018, 16:23:37

I haven't seen anyone on this site seriously argue that the long term physical concept of entropy isn't true or isn't valid, or doesn't matter in the LONG run. Only that economic value (respectfully, despite what you're saying about it being "irrelevant") matters FAR more in the timeframes in which humans care about in the vast majority of their practical decision making.


Indeed, I will actually start worrying about EROEI when I can use it as currency in exchange for a nice thick ribeye and a glass of single malt. :wink:
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Re: Economics vs. Physical Science

Unread postby ROCKMAN » Wed 14 Mar 2018, 16:57:02

Doc - What I always find amusing is how some folks take the EROEI of just one component of the entire dynamic (oil/NG exploration and production) and try to expand the total entire of mankind's consumption of fossil fuels. And then try to relate it to "entropy".

It's really simple: on the basis of the entire fossil fuel consumption the EROEI has a zero return. IOW the global society consumes X Btu of energy every day and produces no additional energy from the effort.
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