• Banno
    23.1k
    Keen is a radical economist form Australia.

    Climate Change Economics the right way and the fraudulent way


    Classical economics breaches the first and second laws of thermodynamics by treating the economy as a closed system that increases in order.

    Mainstream economic modelling of climate change is hopelessly optimistic. Playing with data so as to pretend there is nothing happening...

    And this explains why Scotty from Marketing and other neoliberal governments are taking the approach we see.
  • Mikie
    6k
    Interesting stuff. Thanks for the reference.
  • Banno
    23.1k
    The first few minutes of the video show how standard economic theory fails to take thermodynamics into account. Much of the remainder is an exposé of poor methodology in predicting the economic impact of climate change.

    Economic systems are supposedly cyclic, such that consumers, production, government and finance form a closes system. This is of course a convenient lie. Production can only occur by consuming energy from outside the system - the first law of thermodynamics - and by increasing disorder elsewhere - the second law. Classical economics ignores this as outside it's domain.

    And that is why it is incapable of providing a usable analysis of the effects of economic activity on the environment.
  • SophistiCat
    2.2k
    The first few minutes of the video show how standard economic theory fails to take thermodynamics into account.Banno

    This reminds me of this classic:

    One of the most basic laws in the universe is the Second Law of Thermodynamics. This states that as time goes by, entropy in an environment will increase. Evolution argues differently against a law that is accepted EVERYWHERE BY EVERYONE. Evolution says that we started out simple, and over time became more complex. That just isn't possible: UNLESS there is a giant outside source of energy supplying the Earth with huge amounts of energy. If there were such a source, scientists would certainly know about it.Creationist who almost discovers the sun

    Well, credit where credit is due: this "radical economist" is one step ahead of the creationist-who-almost-discovered-the-sun: he did notice the "giant outside source of energy" up in the sky. Now if he could also spot the giant outside energy sink, he would be golden.

    Is waste heat produced by human activities important for the climate?

    No. The sun provides almost 10,000 times as much energy to the Earth’s surface per time unit and unit area, namely 342 Wm-2, as we emit into the atmosphere or waters through industry, transport, housing, agriculture and other activities by using fossil fuels and the nuclear fuel uranium (0.03 Wm-2).Max-Planck-Institut für Meteorologie
  • Banno
    23.1k
    Is waste heat produced by human activities important for the climate?SophistiCat

    No, it isn't. That's not were Keen went. He shares systems that begin to have energy sources as input and that acknowledge overall disorder as output, suggesting they may be an improvement on present models; however the thrust is that in not taking the physics into account the economists have misled themselves. He's working on a link between economics and ecology.

    Forecasts by economists of the economic damage from climate change have been notably sanguine, compared to warnings by scientists about damage to the biosphere. This is because economists made their own predictions of damages, using three spurious methods: assuming that about 90% of GDP will be unaffected by climate change, because it happens indoors; using the relationship between temperature and GDP today as a proxy for the impact of global warming over time; and using surveys that diluted extreme warnings from scientists with optimistic expectations from economists. Nordhaus has misrepresented the scientific literature to justify the using a smooth function to describe the damage to GDP from climate change. Correcting for these errors makes it feasible that the economic damages from climate change are at least an order of magnitude worse than forecast by economists, and may be so great as to threaten the survival of human civilization.Keen
  • Gnomon
    3.5k
    Classical economics breaches the first and second laws of thermodynamics by treating the economy as a closed system that increases in order.Banno
    Classical economic theory also assumed rational individual actors and minimal government interference. Thermodynamics may be logical (rational), but the regulation (natural laws) is inherent in the system. The human factor in economics is a wild card. And, I suppose it's also an irrational element in Earth-based thermodynamics, resulting in global warming. Fortunately for us, over the long haul, the erratic path of both systems, tends to balance-out at a moderate mean. Let's hope, anyway. We don't really want to eradicate humans from the planet, do we? :cool:
  • Banno
    23.1k
    Cheers. I'll take up this for further consideration:

    Fortunately for us, over the long haul, the erratic path of both systems, tends to balance-out at a moderate mean.Gnomon

    The assumption of continuity is one the physics undermines - tipping points and phase changes, rather than smooth curves.

    It does not look as if the "regulation" is aware of the significance of such.
  • Shawn
    12.6k
    Apples and oranges?

    The only metric governing the behavior of the above are productivity and efficiency increases. Thus, the market takes care of itself, and has no overriding natural law such as thermodynamics governing a differential in entropy. Even then, demand can still mandate a larger increase in supply due to expectations, so that would violate thermodynamics of the economy.

    I mean, it's also hard to argue that we can take into account the recently hotly debated externality of climate change into our equations. For example, try and define a common unit of cost of each ton of carbon emissions emitted into the atmosphere that would (under ideal circumstances) be agreed on by most rational actors. You can do that if you're all under the same banner as the EU does; but, how can the EU convince China that their cost of per ton of carbon emissions is equal to theirs? (This issue of agreement can only proceed from legal agreement or consensus on an issue, and hence is not in the scope of economic analysis to direct or confront the issue, and by definition this would be a tragedy of the commons issue).


    Classical economics breaches the first and second laws of thermodynamics by treating the economy as a closed system that increases in order.Banno

    You might not be familiar with the economic saying "et ceteris paribus", all other things held equal. Again, you can't just assume that every externality is taken under consideration.
  • Banno
    23.1k
    Thus, the market takes care of itself,Shawn

    That's rather the issue in question, isn't it? Is the market taking care of itself a conclusion, or an assumption?
  • Shawn
    12.6k
    That's rather the issue in question, isn't it?Banno

    I don't think it can be persuasively argued on until there are other motivations other than profits, value, or expenses. Markets adhere by a common agreement in law and jurisprudence of a country. So, I don't think the system can take care of itself, as traditionally understood.

    Is the market taking care of itself a conclusion, or an assumption?Banno

    It's an assumption of laissez-faire economics, which has been time and time again been refuted by market failures, and poor accounting on behalf of rational actors operating in the cosm of "the greater world", and not only individual nations.
  • Banno
    23.1k
    Did you watch the video? Keen claims that his criticism of DICE are independent of his criticisms of classical economics, and indeed they are mostly methodological.

    It appealed to my prejudices, so I'm interested in what sort of defence might be mounted by classical economics.
  • Banno
    23.1k
    Creationist who almost discovers the sunSophistiCat

    That seems to be a real comment. Wow.

    Thanks - think that made my day.
  • Gnomon
    3.5k
    The assumption of continuity is one the physics undermines - tipping points and phase changes, rather than smooth curves.Banno
    Of course. Short term economic or evolutionary paths tend to look like the first chart below. But Long-term paths typically vary around a fairly constant mean -- maybe even sloping upward, as in chart 2. Although global warming currently looks like a hockey-stick, over 10,000 years the system has balanced itself well enough to keep Life alive. But now, it seems that a little global government intervention/regulation may be necessary to get us back on track. Dystopian visions of economic/thermal/ thermo-nuclear apocalypse may be premature. Have a little faith in humanity -- we haven't bombed ourselves into oblivion yet . . . :cool:

    1. SHORT TERM ECONOMICS
    eu-ge-201607-fig2.png
    2. LONG TERM ECONOMICS
    236px-GDP_per_person_in_the_United_States.png
    3. GLOBAL WARMING UPS & DOWNS
    easterbrook_fig41.jpg
  • frank
    14.5k
    Freshman classes in global warming teach that the long-term analysis and planning necessary to deal with AGW isn't in our present skill set as a species. We've just never had to plan centuries out. So with assessing economic impact, were used to maybe looking 10 or 20 years out, but the forecast for the next 20 years of climate change isn't too impressive. It's just greater volatility.

    A neoliberal would say we should let free markets form our response. This all centers around how information is utilized. A neoliberal says that in free markets, the mass of diverse information around the world intimately influences practices at local levels with efficiency that central planning can't accomplish. In the face of all the unknowns surrounding climate change, central planning should be avoided at all costs.

    I'd really like to know how the Chinese government thinks about it.
  • Banno
    23.1k
    Have a little faith in humanityGnomon

    Hmm. Having met them, I'm not so confident.

    There's a neat example in the video - making it up from memory, an economist will say that an ice skater on ice at -10℃ will be, say, 2ms⁻¹ slower than one on ice at -8℃°... and 4ms⁻¹ slower than one at -6℃; and that therefore by heating the ice to 2℃ the skater will be able to go 12ms⁻¹ faster.

    There's a problem that is not part of the economist's calculation. They need to talk to a physicist.

    And that's the point, I suppose - that representations to government need wider information.
  • Gnomon
    3.5k
    There's a problem that is not part of the economist's calculation. They need to talk to a physicist.Banno
    I vaguely remember from long ago an economics book (New World of Economics, 1975 ???) that recommended an approach more like Physics. But the problem with such a model is that physical systems are better-behaved and more predictable than chaotic human groups. In fact, I suspect that some economists tried to make models based on physics, and failed to get reliable results. Yet again, their Bell-curve models didn't fit the messy realities of collective and individual human nature.*1

    In Freakonomics (2003) the authors said "Why the conventional wisdom is so often wrong . . . How "experts" --- from criminologists to real-estate agents to political scientists --- bend the facts . . . Why knowing what to measure, and how to measure it, is the key to understanding modern life . . . That almost sounds like a reference to physical measurements. But it would actually be more like the meta-physical measurements of Psychology. :joke:

    *1. Note to self in front page of the book : "When the numbers (values) are removed from the mathematically derived chart, what is left is a pure logic diagram, showing abstract relationships. From this we can derive general principles which can be applied to specific cases and the numbers plugged back in". So young, so naive. Maybe they hadn't perfected Chaos Theory back then. Or Black Swan theory. :grin:
  • SophistiCat
    2.2k
    No, it isn't. That's not were Keen went.Banno

    This is because economists made their own predictions of damages, using three spurious methods: assuming that about 90% of GDP will be unaffected by climate change, because it happens indoors; using the relationship between temperature and GDP today as a proxy for the impact of global warming over time; and using surveys that diluted extreme warnings from scientists with optimistic expectations from economists.Keen

    So, you are saying that Keen's points have nothing to do with elementary thermodynamics, and that smug rant at the beginning of the video was just a strained metaphor? OK. I'll take your word on the soundness of his criticisms, as economics is not my forte.
  • Banno
    23.1k
    smug rantSophistiCat

    SO you liked it?
  • Saphsin
    383
    So, you are saying that Keen's points have nothing to do with elementary thermodynamics, and that smug rant at the beginning of the video was just a strained metaphor?SophistiCat

    I didn't watch the video yet and just skimmed through the powerpoints, but his critiques of Nordhaus that most of the video seems to be based on focuses on the economics and isn't directly related to thermodynamics analysis (paper linked below). Keen is an important Post-Keynesian theorist and not a crank, but he does have a penchant for a polemical public persona. Either that, or it could just be that the first part of the video draws from Ecological Economics, a heterodox sub-field which I'm kind of skeptical of tbh.

    https://www.tandfonline.com/doi/full/10.1080/14747731.2020.1807856
  • Raymond
    815
    There is free energy put in the ordered structures in the production process. The increase in order is compensated for by heat. Like well ordered organisms can form in good relation with the second law, so can the products created by men. The creation of order in factories, the factories themselves, machines for production, everything together created by men, takes the needed energy out of the Earth (and indirectly from the Sun). There is waste heat to compensate for the order increase. It's not so much the increase in order that causes natural chaos. It's the replacement of the natural order and destruction of natural order to turn it into goods in factories that does the damage.

    What he talks about the violation of the second law? Nonsense! You put energy in the production of goods. Order increases. In the process, heat compensates for the order increase.
  • Raymond
    815
    and not a crank,Saphsin

    Considering physics, he's a crank.
  • Banno
    23.1k
    I took the first part as pointing to the sort of modelling in which he is engaged, before launching into the critique.
  • Banno
    23.1k
    To be clear, he doesn't say the economy breaks the second law, but that classical theories ought take it into account.
  • Raymond
    815


    Is it just about ignoring waste heat? Waste heat is not dramatic. If all the energy generated by man since, say, the industrial revolution would be thrown in the atmosphere, there would nothing be wrong now.
  • Banno
    23.1k
    Is it just about ignoring waste heat?Raymond

    No.
  • Raymond
    815



    But that's what he states initially. When he discusses the cooling tower.
  • Banno
    23.1k
    I don't believe so. He does use it as part of an explanation - he is talking to economists. He then shows how he has played with feeding energy into the Cobb-Douglas production function, which I take to be some examples of how economic modelling might begin to take physics into account.

    Note that the critique of climate modelling is not reliant on this. It stands seperate.
  • Agent Smith
    9.5k
    Classical economics breaches the first and second laws of thermodynamics by treating the economy as a closed system that increases in order. — Banno

    That's why the mind is nonphysical! It can create entities/systems (e.g. economic system) that clearly violate physical laws.
  • Caldwell
    1.3k
    Forecasts by economists of the economic damage from climate change have been notably sanguine, compared to warnings by scientists about damage to the biosphere.Keen
    Is this right? I didn't know about, or never paid attention to, opinions by economists about climate change.
  • Banno
    23.1k
    The most concerning thing here is Keen's criticism of the DICE model, for "a priori assuming that 87% of the economy will be unaffected by climate change, misrepresenting contributions from natural scientists on tipping points, and selecting a high discount rate".
  • Caldwell
    1.3k
    That's rather the issue in question, isn't it? Is the market taking care of itself a conclusion, or an assumption?Banno
    You have to give tangible incentives for business organizations to reduce emissions -- namely, measurables in relation to their output (this is the intensity emission reduction). This might be the only meaningful measure for those entities. Contrast that with absolute emission reduction.

    So, maybe it's an assumption that the market will take care of itself, and thermodynamics, in conclusion gets taken care of?
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