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10
Dec

Entroponomics

The words we use convey shared meanings and assumptions that affect the ways we think and behave. Take the word “economics.”

The word itself derives from the Ancient Greek οἰκονομία (oikonomia, “management of a household, administration”) and from οἶκος (oikos, “house”) plus νόμος (nomos, “custom” or “law”): hence “rules of the house(hold).” Since the founding of modern economics in the 18th century, the term connotes order and coherence.

Economists today perpetuate this positive spin by framing their analyses and pronouncements in terms of mathematical certitude. Bankers do the same with their value at risk (VAR) models. However, nothing could be further from the truth.

Today’s reality – amply reflected in global financial markets – is one of increasing disorder and incoherence. To maintain the illusion of prosperity and order governments have for decades borrowed at rates that exceed GDP growth, culminating in the current worldwide sovereign debt crisis. In the US the marginal efficiency of debt – the amount of GDP generated by each new dollar of borrowing – is near zero. (More on this below.) By any rational accounting, the world’s largest commercial banks are over-exposed to risk, if not insolvent. To ease the burden on commercial banks and sovereign borrowers, central banks have held interest rates below the rate of inflation, thereby weakening incentives to save and causing capital flight into precious metals and other perceived safe havens. The result is a liquidity trap and negative multipliers – where government monetary and fiscal policies fail to stimulate the economy. Such failure in turn has driven a reinforcing loop of more government borrowing and capital flight.

Governments compound this disorder and incoherence by trying to stimulate consumer buying – a policy that accelerates resource extraction and consumer/industrial waste at a time when earth’s resources are in decline. According to the Global Footprint Network (www.footprintnetwork.org), humanity today uses the equivalent of 1.5 planet earths to provide the resources we use and to absorb our waste – meaning it now takes the earth one year and six months to regenerate what we use in a year – and that ecological overstep is growing.

To anyone looking into this inflating bubble of frenzied and incoherent behavior, the word “economics” is a misnomer. Instead of orderly growth we find dissipation and wasted energy. In short, what we are doing to the planet – the primary source of our existence – is fundamentally entropic.

We know entropy as the second law of thermodynamics. Its meaning derives from the Greek word εντροπία [entropía], which means a turning inward – such as a turning toward dissipation and energy loss. As a law it is incontrovertible. No amount of elaborate economic theory and mathematical proof will make a declining entropic system something other than what it is. As earth’s resources are used up faster than they can be replenished, we suffer losses than can never be replaced.

If the words we use are to have any real meaning, what we now call economics should therefore be called entroponomics. Think of it as truth in labeling – like the warnings we find on hazardous materials. The purpose of this is to make us think before we act.

 The False Premise of Modern Economics

The practice of modern economics is founded on the assumption of continuous growth – an understandable premise at the time of Adam Smith (1723 – 1790), when world population was less than 800 million, earth resources seemed inexhaustible and the industrial revolution was getting under way.

Until the mid-20th century people rarely questioned the notion of continuous consumption growth as technology and living standards grew by leaps and bounds. Consequently for 200 or more years the idea of such growth became the accepted wisdom, bordering on religious belief.

Today the idea of continuous consumption growth is bankrupt. With a world population of more than 7 billion drawing on a declining base of earth resources, the underpinnings of modern commerce are collapsing. The plain fact is: we cannot infinitely extract resources from a finite planet. There is a limit to the minerals, energy, food and timber we can take from a declining natural resource base. If everyone lived the lifestyle of the average American we would need five planets.

Like a gambler doubling down on a losing hand, governments (and most people) refuse to accept this reality. So to maintain the appearance of normalcy and order, private borrowers and governments have taken on immense debt – spending larger and larger sums to drill in more remote places, to transport increasingly scarce water, to fortify depleting soils with chemicals, to manage growing waste streams and declining public health, to remediate weather disasters and otherwise to continue the illusion of growth.

This acceleration of borrowing inevitably produced diminishing and then negative returns. In the 1950s, for example, a dollar’s worth of debt generated an extra 60 cents of GDP.[1] As the multiplier on borrowing became increasingly negative, that incremental yield dropped to 30 cents in the mid-1990s; then to 15 cents in 2002; and a negative 5 cents in 2008. Unlike the decline in earth’s resource base, which is hard to measure precisely, this declining marginal utility of debt is well documented.

The economies of Europe and Japan are in similar straits. In virtually the entire industrial world, past spending and resource consumption now limit future prosperity; and there is no way humanity can engineer our way out of it by taking on more debt.

Entroponomics is therefore a more apt name for what today we call economics. The word forces us to bend our minds toward alternate ways of being where humanity thrives in balance with Nature: a subject we eagerly take up on this website and blog.



[1]
Credit is defined by the Federal Reserves measure of Total Credit Market Debt Outstanding in the USA. The marginal utility of debt looks at how much GDP you get out of each additional dollar of debt.

Artwork: Plotkin’s Entropy Art Painting











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