Energy and Economics

I wanted to get started on this topic. I may go back and amplify this later.

Balance Sheet for Planet Earth
Years ago I read an article about a man who was attempting to create a “balance sheet” for the planet. I should have kept a copy of this article, but so far have not found it. As I recall, he felt he needed to use some sort of energy unit, or perhaps arbitrary unit, to express values in this balance sheet, as there is no agreed-upon planet-wide currency. I was intrigued. I believe I was doing bookkeeping work when I ran into this, so I found it an interesting concept.

In science and engineering, we have the concept of a “system.” Scientists and engineers have long dealt primarily with mechanical or only-physical systems. Sociologists, on the other hand, have been interested mostly in human (or animal) systems. It eventually became clearer that these two fields actually overlap, often extensively. The problem was really one of analysis. Our primary way to model a system for analysis is through using mathematics. However, the mathematics involved for a complex system (where there may be hundreds of interrelated actions) were too cumbersome until the advent of computer-based modeling.

The word “economics” shares its root with “ecology” and similar words, where “eco” comes from a Greek word meaning “house” or “household.” Obviously the sense of the original meaning has been broadened, so that these subjects can be applied to almost any system, but still somewhat using the analogy of a system to a house. Obviously, it is people who run an economy. So that places economics in the social sciences. “Natural” systems, even if living, are seen as self-governing, and – by most researchers – as self-created for that matter, but research in other directions has demonstrated that this is not totally true. Even in purely physical systems, the fact that someone (the researcher) is observing the system seems to have a subtle influence on how the system behaves. This opens the door to treating systems formerly thought of as merely physical to something a little closer to alive.

As I have been looking into the subject called “permaculture” for a while now, it is worth mentioning that this is a good example of an attempt to create a design philosophy – if not a rigorous mathematical model – for a human-built “natural” system. Because the creators of permaculture sought to keep the subject simple and teachable, this is one good way to get a feel for how to approach the problem of applying both physics and economics to a system.

Money is Energy
However, before I was introduced to permaculture, I was introduced by L. Ron Hubbard to the idea that money can be thought of as a type of energy, or as a way to measure energy flows.

When I was trying to re-locate the article I had seen about a planetary balance sheet I ran across several school lessons (an interesting resource that often appears in searches) with the name “Earth’s Energy Budget” or similar terms. These lessons were mainly written to help students wrap their heads around the “greenhouse effect” climate theories. The fact is that without an atmosphere around Earth – including a portion of CO2 – surface temperatures would be much more crazy than they are now, and the planet would be barely livable.

In these lessons, we have an example of a living system that is relatively stable, or in balance. So I thought I’d go through it briefly as an example. The system (as modeled for analysis) has just one input, sunlight. Though this may not be strictly speaking totally accurate, that one input dominates by many orders of magnitude any other physical input into this system. Most of these lessons start with 100 “units” of energy into the Earth system. Basic theory of a balanced system predicts that 100 units of energy should exit the system (be measurable as outputs). Again, this might not be strictly accurate, but in this system, that’s what we see. The measured outputs are:

  • 30 units reflected light.
  • 49 units atmospheric heat lost to space.
  • 9 units water vapor heat lost to space.
  • 12 units surface heat lost to space.

You will see that these numbers add up to 100, confirming that the system is in balance.

The atmosphere and the planet surface convert 70 percent of incoming sunlight to heat. After that the interaction between surface and atmosphere becomes extremely important, with about 100 energy units constantly cycling through that part of the system.

In the lesson I took these figures from, the students are asked to stack pennies on a diagram illustrating these various energy exchanges in order to visualize the size of these different flows. I have not yet come up with an adequate visualization for the system I am more interested in.

A Model for the Economy of Earth

The amount of energy used by the humans of Earth – or even the entire biosphere – is only a fraction of a “penny” in the energy system illustrated above. Yet we humans are quite sensitive to relatively small fluctuations in the flows of our systems. Beyond that, there is no doubt that we, as the most sentient beings on the planet, must take responsibility for the natural systems we interact with. But we have only been able to really monitor those systems for the last 100 years or so. We are babies in the game of managing planets; and our lack of experience is obvious!

Balance sheets concentrate on reporting assets versus liabilities. An imbalance in favor of assets suggests the enterprise being reported on is doing well. An imbalance in favor of liabilities suggests it is in trouble. In business, these reports are made every year, or sometimes even every three months. While it would be good to keep track of the entire planet on a similar time frame, that might not be practical. But the way things are currently playing out, we should know where we stand at least every five years. And we could probably figure out how to reduce the reporting period down to a year or less once a working system was established.

In physical systems, assets – or pools of potential energy – are relatively unimportant. In the above example, the heat generated by the Earth itself can be totally ignored. Similarly, “liabilities” is basically a human concept. So physical systems are mostly about flows, or only look at the energy storage structures that could directly influence those flows.

In fact, even in human systems, “assets” and “liabilities” are actually not that easy to evaluate. Many things counted as assets lose value over time due to wear and tear, etc., but that’s usually only roughly accounted for. The most important long-term asset is land. Probably the least important is cash. Yet both of these have volatile prices. In business – as in physical systems – the more important measures of health are its flows; is it making more than it’s spending?

The daily flow of energy received from the sun is estimated to be about 11,000 exajoules, an enormous number. Humanity needs only about 2 exajoules a day. It takes most of this energy from “fossil fuels” as well as other carbon sources. It is hard to imagine at this point how things would change if we got all the energy we needed by converting solar radiation. Plants perform this conversion every day, yet that mechanism is insufficient to do the job, as we need to leave most of the plants where they are to perform other functions. In any case, energy input is really not the problem for our world balance sheet. It seems to be more a problem of human behavior, which is classically thought of to be governed by “policy” but more often governed by other factors that most managers seem confused about.

How limited are resources?

What ecologists call “resources” is what economists might call “assets.” Yet planetary resources do not appear on the balance sheets of most businesses unless they have direct control over them and are actively exploiting them, such as in mining. Even then, the land might be valued by its cost of purchase, and that purchase might be seen by the company as little more than one of the costs of production.

Yet, obviously, planetary resources are limited. The most obvious example of this is land area. The only way to get around that is to build skyscrapers and huge basements. The air and its quality is also a limiting factor, as are sources of fresh water. With sufficient energy inputs most limits listed so far could possibly be overcome. This might well be true of all important resources.

Thus, we are looking at a “balance sheet” where “assets” could be valued near infinity. Why, then, do so many people feel so “poor?”

Our ability to handle energy flows

It appears, then, that our basic problem must have something to do with our ability to handle large energy flows. Indeed, people who have the ability to handle energy flows sufficient to operate an organization that does billions of dollars of business a year are considered so rare and valuable that they can garner huge wages all out of proportion the the economic needs of even a large and wealthy household.

The ability to arrange for the energy flows that would be necessary to make this planet work well for all life forms currently using it as their home is probably a key limiting factor to our economic progress. Even given all the criminal enterprises that drain energy out of the system, or waste it, or use it to damage people or property, we could probably do well anyway if there were enough of us that could conceive of and implement systems that could handle energy (and money) flows sufficient to do the job.

And so we see the situation focusing down to a psychological (and behind that, spiritual) problem that too many people share. L. Ron Hubbard once expressed it as an inability to “think big” enough to solve the problem at hand. One benefit of his technology is that it helps people improve greatly in this ability. I think we need more people like that!


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