Archive for the ‘Physics’ Category
Physics vs. Economics: Gravity edition
Newton discovered his gravity equation by empirical investigation. He did not derive it from theory, and in fact even once he had observed the relation he offered no hypothesis as to why it worked. Newton’s gravity implied that objects exerted force instantly by action at a distance, and many believed this could not be true. The modern explanations of gravity do not in fact use instantaneous action-at-a-distance, rather they posit the curvature of space-time and particles called gravitons which cause the movement observed.
Similarly, economists have used a gravity equation to explain trade between countries. Trade increases with the income of each country (like the mass of the objects), and decreases with distance. As an empircal relation it works reasonably well, though not as well as Newton’s gravity equation. But as stated the economic gravity equation is not derived from theory and it posits the same sort of action-at-a-distance. After all, countries do not decide to trade a certain amount because they know they have certain incomes and are a certain distance apart. It is individuals and firms who decide how much they will buy from foreign individuals and firms, and they base their decisions on how much they want specific goods and on how much those goods cost relative to their personal income.
After decades of using the gravity equation in economics, a theoretical backing is being developed to relate the observed action at a distance to individual decision makers – the “gravitons” who are the true proximate cause of trade. Economists always want to be like physicists and it seems that with regard to gravity the parellel is close.
-Inspired by presenting “A Theoretical Foundation for the Gravity Equation” at Temple’s graduate trade seminar (though the paper is dense and does not get very far in the quest for a foundation).
I’m spending this week at a seminar put on by the Institute for Humane Studies, which involves people listening to lectures on lots of topics from a libertarian perspective and drinking free beer. It is odd being in a place where most people around me also love to talk about economics and libertarianism, since the vast majority of Americans are not libertarians or economics majors. But is this newfound consensus a good thing?
In some ways its great; conversations can flow at a much higher level when you can presume that most participants have taken the same classes and read the same books. There aren’t many other places people laugh at my “how many Austrian economists does it take to screw in a light bulb?” jokes.
On the other hand, there is the potential for “groupthink”, the lack of imagination and the lazy arguments that are so easy to succumb to when there is no real live person to represent opposing views. So a diversity of opinion can be good just to keep everyone on their intellectual best behavior.
But there can be a greater benefit to diversity than merely avoiding groupthink. Sometimes the interplay between varying ideas allows great progress to be made; there can be an intellectual division of labor and specialization. Richard Feynman said that other physicists thought him a math genius, but in reality he was not better at math than them, he just had a different approach; and though their approaches may be equally good on the whole, they would only come to him with problems to which their approach had failed. There’s no reason this can’t apply in economics, or even to some extent in political philosophy.
Another way of thinking about this is the diminishing marginal returns of a political philosophy; perhaps a conservative could come here and argue libertarians out of the worst 10% of their ideas, or vice-versa in the real political world if a minority of libertarians can keep the worst 10% of the ruling party’s ideas from becoming policy.
This 2005 book by a physicist and a Manhattan Institute fellow puts forward some shocking claims on the dust jacket: energy supply is infinite, more energy-efficient technology will never lower energy demand, energy waste is virtuous, and gasoline prices will matter less and less.
On closer examination, these claims are either wrong or turn out to mean much different things than those who spent money on the book likely expected.
For instance, hearing that “waste is virtuous”, one expects that it is a good thing to keep the house warm in the winter and cool in the summer while commuting to work alone in your Hummer. But in fact the book simply states the obvious, that extracting and refining energy and bringing it to market itself takes, or “wastes”, more of the same.
Similarly, when a book titled “The Bottomless Well” makes the claim that energy supply is infinite and gas prices don’t matter, you might expect that contains arguments about why we will never run out of oil. In fact, it does no such thing; again, it simply states the obvious, that solar and wind energy are infinite and coal, shale-oil, and uranium might as well be.
The authors do advance some non-obvious arguments. They note that fuel prices have long been declining relative to the price of the things they fuel; for instance, the price of gas has been decreasing relative to the price of cars. This is an interesting trend, but it is unwise to base much policy on the extrapolation of a trend that could easily reverse, and indeed has reversed during the three years since the book was written.
Their argument that increased efficiency will not lower demand is based on a similar extrapolation of past trends. They note that energy demand has increased continually for a century even as efficiency did too. This is not mere correlation; they note that more efficient technologies find so many new uses they end up expanding total energy demand. For instance, though an individual new efficient microprocessor can do the same job as its predecessor with less energy, it will be so popular in so many new settings that more energy will be used to power the total community of microprocessors.
In fact, this is quite an interesting question, containing an array of important subquestions: when does a more efficient version of a current technology change to the extent that it becomes a whole new technology or new product? Demand for energy has increased because GDP and income have increased, but higher GDP and income were themselves caused partly by these new technologies; so how much demand could efficiency gains alone be said to cause? The books problem is that it dodges such interesting and difficult questions by asserting that “basic economics” proves their point without bothering to explain how. If anything, basic economics refutes their point; any economics-based support for it would need to have a good model of how new technology affects a wide range of variables, which is quite an “advanced” and difficult task. Like most economists, I have physics envy and think that physicists and mathematicians are generally the smartest people around; so I do take some perverse pleasure, schadenfreude, at seeing a physicist largely unable to deal with my own field.
The book is far from all bad. If you’re looking for an honest title or a good explanation of the economics of energy, it is certainly not the place to go. But most of the book is really an engaging presentation of the history of engineering new technologies with ever-higher “energy densities”, an explanation of how many electricity-generation methods work, and how the grid distributes power. Underlying it all is a continual explanation of how the laws of thermodynamics must inform any discussion of energy, and how much of the discussion can be framed in terms of entropy, order, and logic.
All in all, the book delivers some poor economics, mixed policy recommendations, and excellent descriptions of the historical and physical backgrounds of energy-producing and energy-using technologies.