Wednesday, December 10, 2008

Thermodynamic Economics

What would a new economy that values increases in social wealth as much as increases in material wealth look like? What kind of an economy takes into account the Laws of Nature, the fundamental scientific tenets of thermodynamics? This, The Center for the Advancement of the Steady State Economy?

What a second...I think I just found some nice relaxing reading for the holiday break, something to integrate my engineering background with a desire to think about economics in a whole different way;

Thermodynamic accounting of ecosystem contribution to economic sectors with application to 1992 U.S. economy
Nandan U Ukidwe, Bhavik R Bakshi. Environmental Science & Technology. Easton: Sep 15, 2004. Vol. 38, Iss. 18; pg. 4810
Abstract (Summary)
Incorporation of ecological considerations in decision-making is essential for sustainable development, but is hindered by inadequate appreciation of the role of ecosystems, and lack of scientifically rigorous techniques for including their contribution. This paper develops a novel thermodynamic accounting framework for including the contribution of natural capital via thermodynamic input-output analysis. This framework is applied to the 1992 US economy comprising 91 industry sectors, resulting in delineation of the myriad ways in which sectors of the US economy rely on ecosystem products and services. The contribution of ecosystems is represented via the concept of ecological cumulative exergy consumption (ECEC), which is related to emergy analysis but avoids any of its controversial assumptions and claims. The use of thermodynamics permits representation of all kinds of inputs and outputs in consistent units, facilitating the definition of aggregate metrics. Total ECEC requirement indicates the extent to which each economic sector relies directly and indirectly on ecological inputs. The ECEC/money ratio indicates the relative monetary versus ecological throughputs in each sector, and indicates the relationship between the thermodynamic work needed to produce a product or service and the corresponding economic activity. This ratio is found to decrease along economic supply chains, indicating industries that are higher up in the economic food chain price ecosystem contribution more than the basic infrastructure industries such as mining and manufacturing. The ratio of CEC with and without inclusion of ecosystems indicates the extent to which conventional thermoeconomic analysis underestimates the contribution of ecosystems. Such ratios, made available for the first time, provide unique insight into the importance of natural capital, and are especially useful in hybrid thermodynamic life cycle analysis of industrial systems. The approach, data compiled in this work, and the resulting insight provide a more ecologically conscious tool for environmental decision-making, and has potential applications at micro as well as macro scales.
The currency of the future may be more overtly energy based, or perhaps backed by carbon. I suppose it already is, but the carbon is undervalued or its contribution is misunderstood.

1 comment:

curiousdwk said...

This is interesting - in a esoteric way (to me). I think I have a simpler way to answer the initial questions - "What would a new economy that values increases in social wealth as much as increases in material wealth look like?" It would be a society where people were paid wages according to the value they contributed to the product. We have lost the value standard. A person can slave for 40 hours a week and create 80% of the product, and be paid $12.00 an hour ($480.00 a week). While a CEO can add less than 1% of the value and be paid $20,000 a week. Or a sports figure can earn $50,000 a week and add nothing but entertainment. And musicians can earn $50,000 a week and be no better musicians than many who can only perform small gigs for $200.00 We need to base our salaries on value added. Until we do, the divide between the haves and the have-nots will increase until the rift is so great that there will be a clamatous event.

But I would enjoy seeing the 91 sectors, their measurements, and the offered solutions.