Tuesday, March 14, 2017

Technology and the Second Law of Thermodynamics

How might one think about economics as a system which is subject to the second law of thermodynamics? Specifically, are the input and wealth gains of present day technology, sufficient to maintain positive growth and the avoidance of entropy?

After all, economic activity is like other organic systems in this regard. Should economic activities be subjected to a certain amount of isolation (or insufficient energy input), ultimately the larger system may be in an increasing entropic state. Or, one might say economic dynamism refuses to "stand still" while yielding a "guaranteed" set of benefits, even if various NIMBY or protectionist factions wholeheartedly wish to make it so.

Can technology overcome such impulses? John Tamny is among those who remain convinced technology assures a positive economic outcome. In a recent Forbes article, "Notwithstanding the Warnings of the New York Times, Economic Growth is Limitless", he writes:
What the Times is revealing, either on purpose or unwittingly, is that ever there was some truth to the popular notion among economists about "limits to growth" all of it goes out the window with the ongoing rise of robots.  
And of a recent piece by NYT economist reporter Neil Irwin:
If Irwin is to be believed...too much economic growth has an inflationary downside.
John Tamny responds, "But it doesn't." What's at issue here? Considering the fact that today's aggregate output continues to take place via relatively less aggregate input, how do fewer inputs affect the system overall? Particularly if less energy may in fact be entering the system, even as technology makes the system more efficient. Which suggests more entropy could actually exist than is readily apparent. I was reminded of the second law of thermodynamics by a recent post from Shawn Parrish which highlighted both Steven Pinker's recent musings on the subject and Eric Beinkocker's "The Origin of Wealth", an excellent book which also takes the problems of isolated systems into account.

What economic components are particularly important for system energy? Money could be considered the nominal component of "system energy", since it is a direct expression of the real economy components of aggregate output and time value. However: an important consideration, is whether money as a nominal expression, maintains an anchor for both aggregate time value and output in the relevant system.

As I've noted in recent posts, sometimes technology is used not so much to contribute to additional output, but instead to reduce the costs of an already given level of output - particularly for important forms of product which involve time value. Ultimately, if a substantial amount of economic activity utilizes this process, it could result in a nonexistent to slight increase in output, as technology contributes to a still diminishing level of (nominally represented) time based input. Given this reality, the second law of thermodynamics may suggest problems for system stability.

To sum up, it's easy to imagine that technology contributes dynamic input in a reliable and constant relation to ever increasing economic output, yet this is not necessarily the case. If a growing percentage of output is not reliably recorded for GDP, there's little point in pretending that otherwise subjective gains are going to somehow make up the difference for system balance. Indeed: for centuries, technology has proven capable of expanding system boundaries via additional output. Now, system boundaries are becoming murky as they are increasingly defined in terms of exclusive outcomes.

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