Sunday, August 12, 2012

Discussion of "Accounting for Growth: The Role of Physical Work" by Robert Ayres

In a previous post, I discussed the anti-growth philosophy of engineer/economist Robert Ayres.  Like me, Robert Ayres is fascinated by the relationship between exergy, the generation of work, and the economy. However, what I find so fascinating is that Robert Ayres conducts such similar research as myself, but yet comes to such diametrically opposite views on the purpose of life. In his book,  Turning Point: The End of the Growth Paradigm (London: Earthscan, 1998), Ayres writes the following:

“It is possible to have economic growth - in the sense of providing better and more valuable services to ultimate consumers - without necessarily conuming more physical resources. This follows from the fact that consumers are ultimately not interested in goods per se but in the services those goods can provide. The possibility of de-linking economic activity from energy and materials (“dematerialization”) has been one of the major themes of my professional career.

What I find so fascinating is that Robert Ayres partially understands the nature of growth (i.e. real growth is the growth in the capability to do work), but yet is so far away from really understanding the purpose of life (i.e. to's not just to be happy.) Robert Ayres is one of a long line of intellectuals who believe that the goal of life is to be happy. The problem is: why should we be so focused on certain chemical reactions in human brains that make us feel happy?

Humans, like many other species, have evolved the capability to feel happiness and joy. It turned out that having the capability to feel pain or joy has helped our species grow. In the past, the chemical reactions and feedback loops that make us feel pain or happiness helped us to avoid danger, to procreate, and to enjoy foods that help us grow. The problem is that we’ve developed technologies  and drugs that trick us into thinking that we are avoiding danger, procreating, and eating essential nutrients. We have to recognize the ease at which we can create feelings of happiness that don’t actually create growth. This includes using drugs and the excessive dependence on thrill-seeking entertainment. Note that this is not a call to ban such activities; in fact, I personally think that more drugs should be legalized. Instead, the goal of my blog is to help change our underlying philosophy of life. Once we understand that the underlying purpose of life is to grow and that growth cannot be “dematerialized”, then we don’t need laws banning the use of drugs in order for us to be smart enough to realize that those people who make/sell drugs, pornography, and thrill-seeking entertainment are nothing more than evolved biological strategies that are parasitic on real biological growth strategies. These people want to thrive off of your hard work, and they do so by trying to convince you that the goal of life is to be happy, and therefore you should buy their drugs, their pornography, their fancy products, or their expensive, but “green” energy. These people have evolved to thrive off of the hard work of people who actually generate work and actually grow the amount of work we can generate.

In this sense, Robert Ayres is like the long line of intellectuals and business people who take advantage of particular weaknesses in human growth strategies: namely, the fact that humans have evolved the ability to feel pain and happiness in order to help us grow, but that the ability to generate the feeling of happiness is no longer linked to real biological growth or to the growth in the capability to do mechanical and electrical work. We’ve tricked ourselves into thinking that we're growing because we've learned to activate all of the chemical receptors that used to be activated only by those activities that help grow life.

In this post, I'd like to discuss one of his latest papers "Accounting for Growth: The Role of Physical Work" (2005). I finally had the time to sit down and thoroughly read it. There’s a lot I like about the article, but there’s also about the article that is simply absurd. (And I’m talking bizarre, such as Equations 3 through 5.) But before I get to the truly absurd, I’d like to point of where Robert Ayres and I can agree, and I would like to point out the hard work he has done in collecting data on the consumption of exergy and the generation of useful work in the US economy from 1900 to 2000. Despite our clear philosophical differences, I think it’s important to highlight that he has a firm understanding of exergy and the generation of useful work. For example,  he wrote the following: 

“The growth engine is a kind of positive feedback system. Demand growth for any product or service, and hence for raw materials and energy services, is stimulated by declining prices.”

I agree; growth is completely a positive feedback loop. There is nothing “equilibrium” about growth. There is no such thing as “equilibrium employment levels” or “equilibrium growth rates” as assumed by most Keysenian and Neo-classical economists. In this sense, Robert Ayres and I share a common distrust with most Keysesian and Neo-classical economists because most of these economists have no fundamental understanding of our non-equilibrium universe and that growth rates must be measured by the growth in the capability to do useful work (not the growth in happiness or dollar bills in circulation.) Growth is investing in new power plants (or biological reproduction) so that those power plants (or people) can make more power plants (or people.) Economics is actually really easy to learn…it’s just that today’s economists make it so complicated by introducing meaningless terms like “equilibrium employment levels.” Economics should simply be the study of human growth strategies; however, the study of economics has been taken over by people who have turned economics into the study of how to make humans happy. In this sense, it’s no wonder why economics is not concerned a true science: the basic unit of measurement is the dollar or the “util”…the unit of happiness. Until economists adapt a unit of measurement with the units of useful work (such as kWh) and until economists acknowledge that the world is far-from-equilibrium, the study of economics will remain, as Thomas Carlyle stated, “the dismal science.” Robert Ayres writes the following in The Economic Growth Engine:

Pg xx: “Every production process is dissipative. A continuous process requires a continuing flow of exergy to keep going. Capital equipment without an activating flow of exergy is inert and unproductive…the exergy flow was free (the sun) so the exergy flow at the time was mostly invisible…it was natural for the early economists to consider capital (including land and animals) and labor to be the primary factors of production."

Pg 8: “The real economy is a complex non-linear system, and non-linear systems do not exhibit equilibrium states."

In an equilibrium world, nothing would happen. In this sense, Robert Ayres and I completely agree that the basic unit of measure in economics should be useful work, with units such as “kWh” or “MJ.” Life grows only in a non-equilibrium universe. Life can’t occur in an equilibrium universe, and therefore, we need to remove all of this economic pseudo-science regarding an equilibrium growth rates or equilibrium employment levels. There is only today’s employment level, today’s GDP and the decisions we make today regarding whether to grow the economy or let it dissipate by wasting our time and energy. It’s really easy to let our economy dissipate. We could spend all of own money on music, entertainment, pornography, drugs, and junk food. It’s actually really easy to do this (just look at Europe right now.) We could also choose to grow our economy by investing our money and time in building power plants and raising children. The choice is ours. We can’t blame bankers on Wall Street or politicians in Washington, D.C. We have nobody to blame but ourselves. We have the choice to grow. Some of us have chosen to grow (by investing in power plants, by raising children, and by working at the multitude of jobs required to maintain a growing society); some of us have chosen not to grow; and some of us have actively attempted to stop other people from growing.

So, now I’d like to analyze the data collected by Robert Ayres regarding the growth in the capability to do useful work in the US between 1900 and 2000. At the following website, you can download an Excel file that has all of the data you need to recreate the graph I have generated below. If you sum the data in cells B665 through H665, you’ll obtain the total generation of useful work in the US in the year 1900. (Note that I’ve purposeful not added the column for Muscle Work because Ayres grossly overestimates the amount of muscle work generated by humans and other animals.) Repeating this for rows 665 through 765 you can obtain the total generation of useful work in the US in the years 1900 through 2000.  From this data, you can then calculate the yearly growth rate in the capability to do useful work. You can then compare the yearly growth rates with the officially stated “real growth rates in US GDP” from 1900 to 2000. That graph is shown below, along with the average growth rates over the last century.

Using Ayres' data, the average growth rate in useful generation of work was 2.4%/yr between 1900 and 2000, and using data from the World Bank and IMF, the average inflation-adjusted yearly growth rate of US GDP was 3.3%/yr between 1900 and 2000. The correlation coefficient between the real GDP data set and the useful work data set was 0.65, meaning that there is some correlation, but not perfect correlation between the two data sets. Note that I cannot vouch for Ayres’ calculations of useful work because I do not know how he did these calculations. Given the fact that he appears to grossly overestimate the amount of useful work generated by humans and other animals species, it is likely that he has some other mistakes in his calculations of useful work. When I did similar calculations (but over a different time period), I obtained near identical average growth rates for useful work and real US GDP for the years 1965 through 2011 (both roughly 2.8%/yr) and obtained a correlation coefficient of nearly 0.8 for the same time period. 

So, here’s the problem. Because Ayres had some mistakes in the way that he calculates useful work, he underestimated the growth rate in useful work.  This led him to believe that useful work by itself couldn’t explain the growth we’ve seen over the last century. So, he added in the growth in capital and labor (the two growth rates used by most economists to account for GDP growth) multiplied by some made-up factors. But this is really double counting. The factors he uses to multiple the capital, labor, and useful work (i.e. his equation (3) in Accounting for Growth) are completely free for him to vary in order to fit to the economic data. It’s no wonder why economists didn’t take Robert Ayres seriously. How can you take him seriously when he creates a completely artificial-looking equation with multiple free parameters in order to try to reproduce the “real US GDP” ? 

His equation is: 

where A, a and b are factors that he varies in order to best fit his data to Real GDP. I’d love to know how Ayres came up with this horrible-looking equation. He provides no physical basis for this horrible equation in his paper.

Instead, I suggest that the correction equation is the following:

where A is simply the factor that converts inflation-adjusted dollars (e.g. 2010 USD) to useful work (e.g. GWh.) There is no way to arbitrarily adjust that factor in my equation above. In other words, Real GDP is just the generation of useful work: nothing more and nothing less. It’s sad to see Robert Ayres get so close to understanding the fundamental relationship between work and economic growth, but because of a few errors in his calculations, he has resorted to the worst kind of pseudo-science (i.e. adding in factors in order to fit your data to the data by economists.) Remember: there are likely to be errors in how the IMF and World Bank calculate real GDP because of the double-counting or under-counting, which arises from the arbitrary definition of a “final product.” There is no need to perfectly fit the data from the economists and we shouldn’t resort to the same double counting errors as economists. I would have expected more from a former physicist.

There is no such thing as a “final product.” Every product is simply a means of making more products. The only way to measure the state of the economy at any given year is to measure the amount of useful work generated in that year, and then compare that number to previous years. It’s really simple to do. In fact, we could save a lot of money by firing most of the economists at the IMF and World Bank. Our money would be much better spent building new power plants or figuring out how to grow crops in the desert than it would be if spent on economists who sit around trying to arbitrarily differentiate “final goods” from “input goods” and from “intermediate goods.”

By so butchering the equation that relates “Useful Work” from “Real GDP”, Robert Ayres has unwittingly helped muddy the waters and probably has confused a lot of people who have read his paper. What we need right now is for more economists to learn non-equilibrium thermodynamics and for more engineers to learn micro-economics. The goal of my blog is to help educate both economists and engineers so that we can spend more of our time/money/work on growing rather than on mindlessly defining “final products”, mindlessly estimating “equilibrium employment levels”, or mindlessly optimizing power plants for “system efficiency.”

There’s only one variable that’s important to measure for a power plant (the rate of return on work invested) and only one variable that’s important to measure for economic growth (the growth rate in the capability to do useful work.) Perhaps, you want to make it more complicated, but I advise you to apply Ockham’s razor and to keep it simple because it really is just that simple. The difficult job is to figure out how to obtain large positive rates of return on investment (when including the cost of any damage caused by pollution.) That is the challenge: to grow life on this planet and on other planets.

1 comment:

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