Economies and ecosystems

This is the third part of a series of posts derived from my presentation at the May 5th local energy conference in Cooperstown, NY.  Links to Part I and Part II.

If you ask a random person what economics is, you're likely to get an answer having to do with money. But when you go into your first day of economics class, you might be told that, sure, money is involved, but that economics is about a lot more than money. It's a social science, one of the ways of studying how people make decisions. It's the science of how people allocate scarce resources toward competing ends.

"Resources" can include things like oil, clean water, or fish, but usually economists focus on a much broader conception that takes in labor and capital (that is, things like productive machinery). Resources in the sense of natural resources are there, too, but the study of their role in the economy is a pair of specialized sub-disciplines, resource economics and environmental economics. Labor and capital are treated as the really interesting things, and economists argue over how to make sure there's more capital, what makes labor productive, why labor is or isn't being used at different times.

So that's economics, the study of the economy. But what about the economy itself? What does an economy do? Here's a really good way of thinking about it, taken from a paper by Charlie Hall at SUNY's College of Environmental Science and Forestry:

Ecosystem basics for economics

This is part two of a series adapted from remarks I made at a conference on local energy in Cooperstown, NY, May 5th. Here's Part One.

Here's my minimal ecosystem "tool kit" for applying lessons from ecosystems to economies:

• 1st and 2nd Laws of Thermodynamics
• Structure of ecosystems and species' roles
• Coordination
• Success through capture of gradients

The 1st Law of Thermodynamics says that energy can be neither created nor destroyed, but only transformed.  The standard colloquial translation is that there's no free lunch.

You can see it at work in a food chain:



from 

http://io.uwinnipeg.ca/~simmons/16cm05/1116/16ecosys.htm



The physical and the financial

On May 5th I participated in a conference called "Meeting the energy challenge for Otsego County: Local solutions, local control, local jobs." Our region has seen a lot of activity to prevent high-volume hydrological fracturing ("fracking" for short), both locally and and in New York state.  The question naturally arises, "If you're against gas, what are you for?" People have already been doing good work answering that question on the ground: retrofitting homes for energy efficiency, developing renewable energy sources, finding ways to reduce our energy demands. Adrian and Antoinette Kuzminski put together the conference to spread awareness of the work that's already being done and to stimulate new efforts.

I was asked to give the opening presentation, addressing issues of energy and money. This is adapted from the first part of those remarks. I eventually address the question of how to pay for energy alternatives, but I first wanted to lay the relationship between the physical part of the economy and the financial, starting with a simple example.

It's reasonable enough for an individual to think about saving up for retirement: as long as you're earning something more than what you need just to get by, you save up, and save up, and one fine day, you can stop working.

For the rest of your life, you  have the privilege of consuming without producing.

But of course it's a different story for a whole society. What if people saved up and then everyone retired?

That's pretty clearly impossible.