I’ve been sorting through the book pile and have started reading Hugh Pym’s [amazon_link id=”1472902874″ target=”_blank” ]Inside the Banking Crisis: The Untold Story[/amazon_link], which so far is a very vivid account of the decision-making in the Treasury and Bank of England. It’s intriguing to get his more rounded perspective, having heard through my own contacts just a few strands of the story.
[amazon_image id=”B00JRYI4JE” link=”true” target=”_blank” size=”medium” ]Inside the Banking Crisis: The Untold Story[/amazon_image]
I’m also taken by the look of [amazon_link id=”0262027437″ target=”_blank” ]The Bubble Economy: Is Sustainable Growth Possible? [/amazon_link]by Robert Ayers, an INSEAD-based economist and physicist. It’s partly about energy and decarbonisation, and partly about financial bubbles and sustainability too, which is intriguing because (apart from my own interest in the links in [amazon_link id=”0691156298″ target=”_blank” ]The Economics of Enough[/amazon_link]) relatively few people see the different aspects of unsustainability as related to each other. The link, as far as I can tell from just paging through, is discouraging financial speculation in favour of the financing of investment in green technologies that will generate real returns.
[amazon_image id=”0262027437″ link=”true” target=”_blank” size=”medium” ]The Bubble Economy: Is Sustainable Growth Possible?[/amazon_image]
Standard modern economics notoriously ignores energy use and has been criticised for this since at least Nicholas Georgescu-Roegen wrote [amazon_link id=”0674281640″ target=”_blank” ]The Entropy Law and the Economic Process[/amazon_link] – an almost unreadable tome, so it’s no surprise it had so little impact. What’s odder is that standard economics ignores resources in general and land in particular, despite its prominence in classical economics. Landlords were villains in all the classical versions, according to Thomas Sowell’s [amazon_link id=”0300126069″ target=”_blank” ]On Classical Economics[/amazon_link]. In [amazon_link id=”0486434613″ target=”_blank” ]Ricardo[/amazon_link], as in [amazon_link id=”067443000X” target=”_blank” ]Piketty[/amazon_link], landlords were “the passive beneficiaries of progress,” as the share of rental income in national income would inexorably rise.
I’m not sure why the postwar mainstream dropped land from economic models – was it really because they could only do the algebra with two factor-models? Whatever the explanation, there’s no excuse for omitting resources from thinking about the economy, alongside labour and capital. And what do we think about [amazon_link id=”0984725113″ target=”_blank” ]the race against the machines[/amazon_link] when we need to think about energy consumption too? Is a robot economy a sustainable one?
Great questions. It’s sobering – and exciting – to think about all the economics we still don’t grasp. Krugman’s right I think: “we just don’t see what we can’t formalise”. (For a given definition of “we”). Land and geography generally haven’t been easily formalisable and so ignored. Energy use / geography / distance are tightly linked too – and we still don’t understand their interaction fully (e.g. generally assuming transport costs are so low that don’t matter enough to worry about).
My understanding is that resources were dropped from standard models because, in the twentieth century, they were not constraining. Available labour, available capital, and available knowledge/praxis (“the level of technology”) between them determined the quantity of economic activity, to the limits of measurement; resources were dropped from models as an unuseful complication. (Note that payments to the owners of resources steadily declined as a fraction of GDP throughout the 20th century, with a hiccup in the 1970s).
Whether the flow of resources (or energy) available is now constraining is not yet clear. Resource/energy utilisation praxis seems to me still to be the bigger constraint.
There is little doubt that an economy in which robots substitute for human workers would be more energy efficient than the current one. Robots can work around the clock, for instance: that increases the utilisation of buildings and machinery, so we need less industrial capital. Robots need less than humans in the way of living and working space, heating, cooling, lighting, water, and so on. Their output is more consistent, so there is less rework. And so on, and on.
The questions about the feasibility of a robot economy centre around the distribution of income. These questions are knotty. For example, it has been shown that under conditions of less than perfect certainty, ownership concentrates remarkably quickly, even among identical agents. (e.g. Fargione et al, http://www.eurekalert.org/pub_releases/2011-07/uom-cft072111.php ; Fernholz & Fernholz, voxeu.org/index.php?q=node/7667) Therefore ownership alone cannot be the basis of income.