16 July 2010

We Need A New Science of Physical Economics

Reposted in full from Ecocity Builders newsletter, July 2010

'It's time we put economics into some sort of physical scientific context that makes sense. Economists have drifted off into a disconnected world where, blinded by massive amounts of money and mystery, they see themselves as a kind of high priesthood calling the shots for practically everything, then saying they were blindsided by the debacle in the real estate world and the up-trading in wildly irresponsible and, strictly honest to say, greedy derivatives. And now they are fumbling around trying to decide which theory to apply to address the world deficit situation and spreading underemployment - among a number of other deadly serious things. Meantime they seem to have no idea whatsoever what to actually build physically and thus they are not developing anything like a strategy for a recovery that actually fits the situation on our oh-so physical planet Earth at this time of its Great Recession.

Some of us, if not economists, knew something was profoundly wrong with overvalued real estate sometime around 2005 or 2006; it seemed utterly obvious. Meanwhile the economists kept pumping the bubble for higher returns to those with money to invest and for themselves in the Priesthood. From our supposedly naïve non-economist point of view, myself and my friends, it was simply a little common sense.

It has to be more scientific than that. But common sense is a good start. Get real in regard to physics, geology, chemistry, biology, ecology and psychology: "Hello Science. People calling. Is anyone listening?"

From Ecological Economics to Just Plain Physical Economics

We already have environmental economists, ecological economists, bioecological economists and so on, described in various places as "fields of academic research." Why then have they failed to focus clearly on what we need to build just plain physically and why have they failed to identify the largest thing humans build - cities - as the foundation for solving many of our most intractable environmental and societal problems? Why has concern for "sustainable development" barely scratched the surface of ecocity design, planning and development, much less identified urban layout and design as the key factors in facilitating or working against a wide range of technologies and lifestyles?

Perhaps the entire enterprise to date has been a little too academic and separate from the world of real steel, stone and mortar, energy, food and transport. Perhaps even ecologically conscientious economics needs a good dose not just of math, physics and ecology but also engineering, architecture, industrial design, technological development and business administration and, not to leave out, the development incentives and disincentives of zoning and codes, taxes and politics. Physicists and students of aerodynamics are not enough to build airplanes - you need those other guys too.

Where it starts in terms of the conditions we find ourselves in, on this planet at least, is with the massive flow of solar energy into our physical economy, mainly through plants, chlorophyll and soil at about 2.5% energy conversion efficiency, through 80% efficient passive heating and about 20% efficient solar electricity, all available with some serious investment. The sun's been with us a long time so we have two basic energy resources of enormous scale, one is the energy flow of solar income and the other is solar energy savings in the form of the fossil fuels. Solar income energy is a pretty benign source and fossil fuels are tricky as we are beginning to see with the Gulf Oil Spill, climate change and other disasters that range from the catastrophic to apocalyptic. There's a big hint here for a transition in thinking starting with physical economics: invest in solar and its derivative: wind; begin disinvesting in fossil fuels at the same time.

Another very large consideration is the mineral and metals savings account of the planet. If we don't recycle these they will become ever more scarce through rusting and frittering away in small item dispersion lost to any economically viable recovery in the longer range future. In practical terms that means we need to build a physical environment, mainly our cities, to run on about 1/10th the energy and 1/5th the land, which is proposed by a discipline closer to science than today's economics, that of ecological city and town design and planning. A super efficient built environment, the collective home the vast majority of us live in, also makes assiduous recycling possible.

The largest physical thing to consider is the built environment. What is it we actually build and what does that determine in terms of technologies and lifestyles? We should know we are in trouble when Brazil plows under virgin forests for ethanol road fuel, when India manufactures and promotes the cheap car called the Nano for its 1.2 billion people hurtling about enclosed in false security while 100,000 are killed in car accidents every year there as the Nano leaves the starting gate, when the Russian Government announces it has purchased 2.5 million acres of land to turn into car-dependent scattered development and when a Chinese gentleman sharing a cab with me in Beijing in his country of almost 1.4 billion people said, "Well if I can't have a car how can I get a wife?" Those four countries together represent 2.7 billion people hankering to live the car-city lifestyle of Americans when there are 9 times as many of them on the Earth as Americans. And Americans are trying to figure out how to have better cars rather than figure out that the car is part of a whole system like any other living complex organism and better cars promote more sprawl and dependence on cheap energy - which is going away as we begin pursuing this new idea of an economics rooted in physical realities.

Another very large factor passed over by the nervous is graduated income and property taxes. It is scientifically obvious that you have to go where the ore is to get copper, where the sun, wind or fossil fuels are to get energy in serious quantity. Similarly, following recent courageous suggestions by Jeffrey Sachs in the July 2010 Scientific American and recent comments by Hillary Clinton of all people, not known as a major economics theorist, you have to turn to taxing the rich - seriously. Not the middle class and the poor but the rich. The rich have convinced the poor and middle class to think "more taxes" means them. Smart trick, but that's not the idea here: graduated income tax with the rich paying their share of what society and environment helped them make. That's where the stored wealth to build a better world is and physical economics, if not today's mainstream economists, would identify and prioritize that very genuine resource instantly.

What would the tax money be invested in? As placed in high priority above, befitting the enormous scale of the enterprise, reshaping cities as ecocities, cities for people not cars, and getting on with renewable energy development along with the radical energy conservation of ecocities.

Limits and Hard Work

Let's not forget the two big ones this articles' physical economics* zeros in on as highest priorities of all: the reality of limits and the value of hard work. In the face of all the other supposedly "hard science," a grand compliment macroeconomists quest most passionately since they are true believers seeking their own version of Einstein's elusive General Field Theory, and with it, should they attain it, thinking themselves absolutely certain, economics promotes the wildly off base and destructive notion that constant growth is the only healthy state of the economy. It is finally time for economists to join the crowd in the real "hard sciences" that recognize the infinite growth in a limited environment is as dreamy as lead to gold and the perpetual motion machine. I won't even try to defend that statement.

And finally how do you think it is the Chinese went from famine and poverty in one generation to a stunningly productive, gigantic economy passing the United States in a number of ways? They work like demons, typically two to four hours more a day than Americans, they earn less money per hour outcompeting their competition, there are many more of them and they work on savings and investments instead of borrowing and betting on infinite growth like the real estate derivatives gamblers. Some might say its because they have a centrally planned economy but they also have some of the wildest of capitalism's enclaves as big as whole countries. All those things are not rocket science or the latest fad in macro economic's byzantine and ever changing formulas. They are pretty simple, standard old school, straight forward economics and represent very physical work. They also represent an excellent example of limits as the country is drawing down its soils, water and minerals and wiping out its biodiversity at a withering rate, transforming all that into pollution generated where the products are made and launched toward the United States and other debtor, high consumption nations.

I recently attended the Second International Degrowth Conference in Barcelona, Spain. I agreed completely with their consensus belief that constant growth is doomed or we are. I agreed that GDP, with it's destructive activities recorded on the positive side of the economic ledger - neglecting damage to the Earth, people and biosphere, even climate system of the planet - is a truly dumb, dated and destructive measure. And it is even intriguing that, as a number of their speakers advocated, if we worked four days a week instead of five or more, we would have far less unemployment and we'd be consuming less, giving the earth just a small amount more breathing room. But listening to the "relax our way into the future growing our own vegetables, renouncing specialization, and having much more time just to enjoy life" I just had to say, "Is this the way to save a planet in real distress?" Who ever faced a crisis, from escaping a sinking ship or burning house, fighting a war or struggling for survival in an environment of real poverty...by taking it easy?

Are climate change, species extinctions and eroding energy and mineral resource a real condition loose in the world today or not? So I think it is time to gird our loins for a real race to the finish and take hard work serious for survival reasons as well as in recognition of some sort of economics that makes sense. I believe that the threats confirmed by practically all legitimate scientists these days is a physical reality and I believe we need an economics based firmly in that ever-so physical conviction.

Put all the above together with reasonably prudent money management in basically traditional ways and you have the outlines of a new science we might call physical economics.

*We are aware Lyndon LaRouche and others use the term "physical economics" in similar critiques of economic policies but note many differences as well including the typical economists' omission of city design and layout and relevant policy.'

Richard Register is Founder and President of Ecocity Builders and author of Ecocities, Rebuilding Cities in Balance With Nature.

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