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"Production, Entropy and Monetary Macroeconomics"

Interesting Theory of Everything from Steve Keen.

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Submitted by wuming on

This is utterly fascinating and I have been inspired to finally order a copy of the textbook that Steve Keen suggested. Maybe once I can get into it more, I'll post about it here.

I tend to think that learning how to do the modeling is going to become very important. It provides a real sledgehammer to win debates with the other side.

Submitted by hipparchia on

a general rule of thumb that i've generally found to be generally useful: economists who think they are also physicists are full of "waste products" (or "waste heat," i'm not going to watch the video again to see if i remembered correctly which phrase he used).

the laws of thermodynamics, as he's trying to use them here, apply to closed systems, with no outside inputs whatsoever, of either energy or matter. but the earth, as it is right now, and for the foreseeable millions of millenia, is an open system with a constant input of new solar energy. and then there's the energy produced by tides, which are driven by gravity, which is also going to stick around for the foreseeable millions of millenia.

it's true that our ability to harness this essentially infinite supply of energy pretty much relies on our use of a finite supply of physical resources - we can only dig up and process so much ore to extract the minerals that we then turn into batteries, for instance - so he's right to include raw materials in his economic calculations.

still, this misapplication of physics leads me to wonder what other not-quite-right assumptions he may have intentionally or unintentionally included in his models - kind of like people who think that fiat money systems are operationally constrained instead of politically constrained when it comes to handing out money.

for the present, i'm inclined to file steve keen under the heading of people who use weapons of math destruction.

Submitted by lambert on

IIRC there's one slide with a big yellow arrow coming from the sun to the earth. I think Knee understands that the earth is an "open" system within a "closed" universe.

Submitted by hipparchia on

and that's one of the problems with weapons of math destruction.

if keen, or anybody else who uses complex models, is either deliberately or innocently offering up some confuzzled mathematics, or maybe he's got excellent mathematics and just a confuzzled explication squashed down to fit a short video, who's got the time and energy to comb through it all and see if he needs to be more specific in step 2?

Submitted by hipparchia on

no, i'm not sure, so i asked a scientist friend for his take, reprinted here in full:

I think your comment is valid. The earth is a non-equilibrium system. It has, as you say, solar energy coming down. To properly make the thermodynamic argument that he's trying to, you have to include the sun in the control volume. And the big empty universe that both bodies radiate into.

I mean, the planet has long had an ecosystem with relatively stable steady states. "Production inherently causes pollution?" Okay, but CO2 is re-sequestered, biomass rots and is re-consumed. The "cycle" part of all that works because there's an energy input.

And the worse part is, he has no reason to go there. His basic point is right: constant growth rates (the very definition of exponential growth!) can't happen for long. And we've only done it as long as we have because of the oil in the ground. And even solving fusion would only allow us to do it for a few years longer. Really! And [as argued by the same guy[(, improving efficiency will only get you as far as Carnot. (This Tom Murphy guy is making the right argument with thermo.)

The other complaint I have with the talk is that environmental economics (or whatever pretentious name he calls it) isn't new. It's under-credited, probably exactly because it points out the bugfuck madness underlying some cherished economic assumptions, but it's been around awhile, and the fact that he named his software after Hyman Minsky shows that he knows better.

All that said, however, I do think that a dynamic systems analysis is how macroeconomics is best evaluated and understood. Or at least that it serves an unmet need in prediction and understanding. I've now and then come across a few people who look at things that way, and, well, you've read my crap along those lines over the years too. I don't know how well his computer program captures reality, but I like the idea of it.