Saturday, December 19, 2009

Economic Dynamics - And the Real Danger

George Mobus has published a new summary paper on his blog Question Everything that he have written to explain the findings from his computer model of an abstract economy's dynamics when it is run mostly on fixed, finite fuel sources such as fossil fuels.

His model describes an abstract economy in which work processes use energy and raw materials to produce assets, some of which are consumed by processes that constitute the major body of the system, some of which will be reinvested in the work processes.

The dynamics of asset production and decay are governed by the laws of thermodynamics. The general conservation law applies to both matter and energy. But the second law, in particular, has ultimate influence over the efficiency and effectiveness of work processes as well as the entropic decay of all forms of assets.

A key question that needs to be addressed is: given our current heavy reliance on fossil fuels for more than 80% of our energy inputs, what happens in an economy that is growing when the resources are depleting?

Many people have realized, either intuitively or logically, that what matters insofar as economic activity is concerned is the net energy — the energy available after extraction of the gross energy (in this case crude oil) and refinement or conversion to a form useful in doing work. Energy must be reinvested in energy extraction, transportation, and refinement in order to gain net energy that can be available for asset production (other than assets needed for energy extraction). Thus there is an energy return on energy invested (EROI or EROEI) that must be taken into account in determining if an economy is viable, stable, or growing.

Check out the very interesting full post on the Question Everything blog.

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