[chiralSPO (OP)]

I have always been a little concerned by the way that capitalist economics demands constant growth of the economy. Given a finite supply of stuff, and assuming that at a certain point the world's population stabilizes, how can the economy grow?

Supply side:
Energy = ability to do work; constant rate of insolation (~same amount of E available to do work at any given time--you could use it as it comes in, or save it for later, but there is effectively a fixed "income")
Matter = goods; constant--at this point we are still mining the earth so the amount of available matter is still increasing, but this will slow and reach equilibrium at some point.
Order = entropy = organization or (not waste)-- there is a constant drain on economy due to inefficiency (not economic inefficiency) and decay--value will decrease over time given no input.

Demand side:
# of people; constant (once equilibrium achieved)
how much each person wants; would have to increase for demand to increase

If people use energy productively, it increases value of stuff on earth; if they use energy destructively it decreases value of stuff on earth. I find that the limit of economic growth is essentially the influx of captured energy. Total economic value at time T is <(integral of energy captured dt, from t=0 until t=T). And given the proportion of the economy that is driven by destruction, I think this upper limit is very far above the real value.

The only other thing I can come up with is innovation. If people can continuously find more valuable ways of using energy or more valuable goods that can be made from the same matter.

Does this make any sense?

[alancalverd]

My thoughts precisely. It was back in the 1960's when I was asked what was the overall effect of human activity, and I said "it warms the planet".

If you want thermal stability you must return to an entirely solar-powered economy. If you want to enjoy a western standard of living with indefinitely sustainable energy, you need to reduce the human population to about a fifth of its present level. Unfortunately politicans and economists have no idea of how to sell such a program and guarantee themselves re-election.

[CliffordK]

I have always been a little concerned by the way that capitalist economics demands constant growth of the economy.

I'm not sure if this is entirely true.

A small business, or farmer might be perfectly happy if their income and expenses merely match.  One of the biggest problems is the capital investment, but once the capital is paid off, then the income naturally will seem greater.  Inflation may be more of a pain than any benefit for the small businessman.

The investor, of course, generally only invests for the purpose of increasing the investment.  It still doesn't hurt to find an investment that has good steady returns.

As far as corporate growth, one of the big means for corporate growth, even in a stagnant economy is to move in and take market share from another business.  In a sense, this could continue until one ends up with a couple of big mega-corps (except for anti-monopoly laws).  However, the big companies are always at risk of the next upstart with a good idea coming in and starting to whittle away at their market share.

Do we need an increasing monetary supply and inflation?

And, it is beyond me why governments think they're better off borrowing money than actually balancing the budget.  Perhaps a small municipal government will need a loan for capital projects, but taking a loan to meet payroll is ludicrous.  A large government should be able to pay for capital expenses without loans by spacing the capital expenses out to match the income, and figuring out a way to budget to cover capital needs.

[alancalverd]

A small business, or farmer might be perfectly happy if their income and expenses merely match.

You have put your finger on the nub of the problem. Any organisation contains elements of production and management. Production workers' remuneration depends on the number of widgets they make per week, n. The function of managment is to change things, and managers' remuneration depends on dn/dt. Economists, politicians, consultants, and all the other parasites who sit on the workers' shoulders, need dn/dt>0 to justify their existence so they preach expansion, not for its inherent goodness, but for the sake of their own careers.

The growth of a corporation is often limited by nuclear instability. As you acquire more subsidiaries, so you spend more time and energy on corporate affairs and less time on contact with the customer. Eventually whatever stroke of genius led to the initial product, gets so diluted or attenuated by inward-looking functionaries that the company cannot respond to a challenge, and falls apart. Beware of recruiting neutrons!

[Matt]

Is it the impossibility of infinite growth that leads to the boom and bust cycle? Where growth becomes unsustainable and a bust is required to 'reset' the capitalist system?

We can all look to Gordon Brown for advice as he claimed there would never be a return to "boom and bust" economics.

[wolfekeeper]

To a first approximation the answer to this question is: it can't

However, there's a number of holes in that answer:

a) not all economic activity takes raw materials, for example films in principle can be made in computers/with web cameras etc

b) the resources of the Earth are finite, but vast (we're not tapping more than a tiny, tiny fraction of wind energy or solar energy right now)

c) we have ways (which are not particularly well developed at the moment) to access the rest of the solar system, and you would not believe how much energy and resources are up there (enough resources for a hundred trillion people at current usage levels without trying hard)

Is it the impossibility of infinite growth that leads to the boom and bust cycle? Where growth becomes unsustainable and a bust is required to 'reset' the capitalist system?

Not so much, boom and bust is usually more to do with fraud and the wildly varying estimates of the value of assets.

[evan_au]

Given a finite supply of stuff...how can the economy grow?

You are thinking of economics like physics or chemistry, with various "conservation" laws (conservation of charge, conservation of mass/energy, etc).

Economics does not have a law of conservation of value. In fact, it only takes a natural disaster, a fire or a war or riot to destroy the value you thought you had.

the wildly varying estimates of the value of assets

I think this is the fundamental issue - the value of many economic assets like shares, futures, derivatives, antiques, literature, music (and to some extent, currency, real estate, diamonds and gold) is only what people think other people think it is worth. It has nothing to do with any inherent value. So you can have (apparent) economic growth or economic loss merely by groupthink. This leads to a boom and bust economic cycle.

This is in contrast to "real" economic assets which cost real effort & resources to produce and which actually benefit the people who use and/or consume them; the cost of manufacture lends some stability to the value of these goods. But changes in fashion, technology and national priorities can change the value of these assets up or down.

Somewhere in-between are "services" which take only the effort of the person who produces them - but again the value is purely what value society places on them (which must be greater than the cost of feeding the person who provides the service, or it won't be sustainable). An increasing fraction of Western economies is in the form of Services, rather than Primary production (eg farming, Mining) or Secondary Production (Manufacturing). The internet has been disruptive here, since commodities like music, video, books and software are all treated merely as "data" which can be reproduced with zero manufacturing cost and almost zero distribution costs, so the economic value is purely arbitrary.

Manipulating Economic "Value"
Many governments consciously aim at a small rate of inflation (Australia likes a target of around 1.5-3% per annum). This means that the "ticket price" of a good or service will gradually increase over time (all other things being equal). A nation's central bank can control this by the rate of printing money, or by witholding money from circulation.

Governments can also manipulate the value of their currency by judiciously buying and selling it. Unfortunately, the recent economic woes of some countries in the European Union have been made worse because their currencies are "locked in" with the Euro, and the traditional mechanism of revaluing currencies are no longer available to them.

Companies also consciously manipulate the value of their products by selling to one demographic at once price, and relabel it to sell to a different demographic at a different price. The internet has actually interfered with this model in that people can now often buy from the lowest-cost source.

For many goods, people are mostly paying for the label, not the quality of the product itself. The value of the label may be high, but the cost of the label is effectively zero. This mostly applies to "fashion" goods.

Energy
It is true that any physical process requires energy to process goods and even to counter the decay of entropy.

It is also true that since the start of the industrial revolution we have had access to highly concentrated forms of energy in the form of coal, petroleum, natural gas, nuclear etc at a very low cost, which have allowed us to manufacture goods more cheaply than ever before. You can calculate an energy intensity of manufacture eg you need X barrels of oil (or kWh of electricity) to produce $Y billions of goods.

Some economists got this relationships backwards, and took the short-cut of drawing up estimates of future petroleum production by looking at forecasts of future economic growth, making an implicit assumption that petroleum resources are infinite. It was only when some researchers looked at the the capacity of existing petroleum fields and comparing that with the capacity of newly opened fields that this was revealed as a degree of wishful thinking.

A change towards less energy-intensive goods and services (eg from driving private cars to public transport or telecommuting) can reduce the energy inputs required for a certain economic output. This can be assisted or hindered by fashion, technology and government policy. If next year someone invents a "Mr Fusion", energy intensity will cease to be a problem, otherwise we will progressively need to adapt our energy consumption to live within our means.

Human Effort and the future...
To some economists, the cost of a good is the wages of all the people who contributed to its production.

This may be one reason why economists have struggled for so long to measure an economic return from computers.

• A modern home computer does far more than the average home computer 20 years ago, but costs less. In some economic measures, economic production has reduced, despite our experience to the contrary.
  
• As computers/robots/AI progressively generate a greater fraction of the world's production, they need a greater contribution of economic output to maintain the computer technology rather than the people who produce the economic output. 
• I wonder when the first automaton will earn a wage?  (This question was raised in Isaac Asimov's book/movie "The Bicentennial Man".)

[wolfekeeper]

It actually looks like to me that the cost of energy might go down.

The forces that cause this are wind power becoming ever cheaper- it's already cheaper than coal; and solar is now crossing over the cost of domestic electrical energy. In addition, gas power is cheaper than coal as well; and other forms of bio energy or energy storage are likely to emerge to fill in for when the sun doesn't shine and the wind doesn't blow.

Energy affects economies, so any reducing cost of energy is likely to improve the economy.

[alancalverd]

In fact, it only takes a natural disaster, a fire or a war or riot to destroy the value you thought you had.

The conundrum of investing in art: Why would anyone bid $1,000,000 for a pickled herring? Because if he didn't, the pickled cucumber for which he paid $1,000,000 last week, would be worthless.

The reason wind is apparently cheaper than coal is because coal-fired generators pay a huge subsidy to windfarmers, and you have to use the stuff whenever the wind blows, which means shutting down the coal station - and idle capital costs money. Windfarming without storage is parasitic and opportunistic, not a sound economic proposition.

[wolfekeeper]

No, that's not true. The cost of energy of (onshore) wind is typically below that of coal.

The reason is because the amount of equipment you need to make wind energy is relatively modest, just a big windmill, a generator and a long cable to the nearest part of the grid.

The wind doesn't blow all the time- only about 1/4 to 1/3 of the time, but it's still very economic, and the economics improve as the windmills get bigger.

For coal, you have to have boilers, condensers, furnaces, you have to truck the coal in, get rid of the waste. During operation, you tend to get clinker in the furnace, so you have to shut-down periodically to clean it. The net upshot is that a coal station is only running about 60% of the time, but there's a lot more expensive equipment than wind.

A gas powered generator can run much longer between services, they can have over 80% usage, and that brings the cost down. Also fracked gas is looking really cheap (whether fracking is a good thing is a separate question entirely).

For onshore wind, wind is rather cheaper than coal in many, but not all, places.

Wind of course is a variable resource, but provided you don't go above getting ~30% of your total power average electricity from it it usually doesn't matter that much; when the wind blows you get your energy from there, when it stops you ramp up the other generators. Although variable, wind is pretty predictable, so you have the ability to shut down generators and start them up again.

[peppercorn]

The net upshot is that a coal station is only running about 60% of the time, but there's a lot more expensive equipment than wind.

Sixty percent is a much lower figure than I would have imagined. I don't suppose you have some data to back that up?
If that's really the kind of ballpark a coal station will be running then (as you say) it really changes the energy landscape.  I'm sort of surprised I've not heard proponents of renewables shouting this from the rooftops all ready.

[wolfekeeper]

http://en.wikipedia.org/wiki/Capacity_factor#Typical_capacity_factors

I haven't checked the reference.

The main problem with wind is NIMBY-type issues; but onshore is down to commercial pricing.

Solar is more user friendly, but it is only just getting down to even domestic kWh prices and commercial pricing may not be achieved.

[CliffordK]

When a government adds money to the economy, then the price of everything increases (due to inflation).

I'm not quite sure where all the influx of money comes from.  Some is from spending more than revenue.  Loans?  One option would be rather than taking out "government loans", to intentionally overspend the revenue by a couple of percent, and make up for it by printing new money (or the electronic equivalent).

Of course inflation encourages people to reinvest rather than keeping their money in cash, but otherwise doesn't increase any buying power.

[wolfekeeper]

Yup, inflation is a deliberate thing done by the government.

What they do is they issue government bonds, these are bought by the major banks and used as collateral which they lend against. The government spends the money.

Governments usually target for a small, always positive amount of inflation.

This isn't a conspiracy theory, it's very, very deliberate. Governments try desparately to avoid deflation, where holding onto your money makes its value go up which means everyone reduces prices to attract spending, but that's more deflation.

That puts the economy into a death spiral.

So governments keep the economies with a small amount of inflation and vary the amount of 'money' in circulation to keep it there.

[alancalverd]

the amount of equipment you need to make wind energy is relatively modest, just a big windmill, a generator and a long cable to the nearest part of the grid........when the wind blows you get your energy from there, when it stops you ramp up the other generators.

There's the rub! The whole point of retail electricity is that it is there whenever you need it at the point of use. Your food won't spoil, the lights stay on in the operating theatre, and so on.

So whenever you build a windmill, you have to build a fossil or nuclear generator with the same peak capacity, to cover the times when the wind doesn't blow, and then only run the non-wind machine at about 60% of capacity. And you now need two connections to the grid (not a trivial "cable".... HV wiring, pylons, switchgear, isolators....)  So the inherent capital cost of wind power is more than twice that of conventional energy, and the overall return on capital is about half that of an all-conventional system.   

By privatising electricity supply, requiring a significant installed base of windmills, and imposing a renewables levy on conventional power generators, government has killed the electricity industry or doomed us to rising prices. There is no point in investing in new conventional plant unless the retail price of energy is allowed to double, because you could get your money back quicker elsewhere - e.g. by buying a useless windmill! - and there is no longterm commitment to supply anyway. The power companies were sold off below market value and bought by investors looking for a quick killing, not by philanthropists.

If wind power really is that cheap, why are the owners paid not to generate electricity when demand is low? 

The main problem with wind is NIMBY-type issues; but onshore is down to commercial pricing.

Have you ever lived 2 miles downwind of a 10 MW windfarm? No windfarm owner does - the racket is astonishing (on the few days when it is working, that is). Imagine an airport running 24/7 with no gaps between arrivals.

The other problem is that all the "good" onshore sites in the UK (i.e. sites where annual output can exceed 10% of rated peak) are already occupied. There are plenty of offshore sites remaining with 20% potential, but the cost of an offshore windmill is horrendous (you need to burn thousands of tons of coal to make the concrete foundations and steel pylon, for a start) so only the "best" sites are worth developing.

[peppercorn]

I notice some claims here are beginning to get a bit rhetorical in nature again.
Can we base our statements of actual figures please?  Like noise and embodied carbon.

For example, what is the Energy Return on Energy Invested (EROEI) over the lifetime of these sources?

[alancalverd]

OK, let's put some numbers together.

The energy required to make 1 tonne of steel is about 20 gigajoules

A 200 kW (peak) windmill, including the support column and foundation, weighs around 30 tonnes

So you need to invest 600GJ to make it.

Assume 10% mean power output (UK maximum is about 20%, some run at 5%). So you need to run for 600,000,000/20 = 30,000,000 seconds (about a year) to generate the energy expended in making the machine.  Add something to generate the energy used to make the backup generator, and an allowance for the necessary switchgear.... does this look like a sensible investment of fossil fuel?

Remember that a 200 kW diesel generator only weighs about 3 tonnes and will produce its full rated output 95% of the time (5% maintenance time is fairly generous).   

[wolfekeeper]

10% average?

No. The AVERAGE 'capacity factor' of the UK wind generators is about 27%. I don't have the exact figure to hand, but the maximum would probably be over 35%.

So it pays back in under 5 months.

And wind power in the UK does not have a single extra generator built to accomodate it, not a single one, nor are any planned.

The UK grid is perfectly used and designed for plants coming online and leaving again. The coal fired plants are online only 50% of the time. And in some ways wind is better than other plants, wind power doesn't unexpectedly fail, they know from weather forecasts what it's going to do a few days in advance and individual failures make no significant difference to the overall power generated.

[wolfekeeper]

the amount of equipment you need to make wind energy is relatively modest, just a big windmill, a generator and a long cable to the nearest part of the grid........when the wind blows you get your energy from there, when it stops you ramp up the other generators.

There's the rub! The whole point of retail electricity is that it is there whenever you need it at the point of use. Your food won't spoil, the lights stay on in the operating theatre, and so on.

So whenever you build a windmill, you have to build a fossil or nuclear generator with the same peak capacity, to cover the times when the wind doesn't blow, and then only run the non-wind machine at about 60% of capacity. And you now need two connections to the grid (not a trivial "cable".... HV wiring, pylons, switchgear, isolators....)  So the inherent capital cost of wind power is more than twice that of conventional energy, and the overall return on capital is about half that of an all-conventional system.   

No, you probably read The Daily Telegraph or something. They systematically lie about this kind of thing, I think they think their readership hate wind power, so every wind power story gets spun.

It has been studied extensively by the megabrains and that's not what happens in practice, at least till you get past 20% of all your power from wind (current value is about 3%, growing at 25% per annum or so.)

The current grid has NO extra backup capacity directly or indirectly associated with wind power, nor is any planned.

The thing is, the capacity factor of wind isn't that much worse than coal plants, which are only operating 60% or less (actually the figures for the UK are under 50% for some reason). So in practice you inevitably end up with a lot of extra capacity anyway.

So it's a just a question of juggling the network; and the National Grid are very, very good at doing that, and overall, in practice, wind works out about the second cheapest source of electricity- for new builds.

By privatising electricity supply, requiring a significant installed base of windmills, and imposing a renewables levy on conventional power generators, government has killed the electricity industry or doomed us to rising prices.

That's not really right at all. The wind option is cheaper than other options, with the possible exception of fracked gas; that's the only current new-build power supply that's cheaper than wind.

There is no point in investing in new conventional plant unless the retail price of energy is allowed to double, because you could get your money back quicker elsewhere - e.g. by buying a useless windmill! - and there is no longterm commitment to supply anyway.

No, that's not it. What is happening is that the coal plant is paid off (and aging). It's being forced to shutdown because it's polluting. Although I said that wind power is the second cheapest, it's not cheaper than plant that's paid off. Wind power, or ANY new generators are more expensive than paid-off generators; and nuclear, is usually much more expensive than wind.

The power companies were sold off below market value and bought by investors looking for a quick killing, not by philanthropists.

If wind power really is that cheap, why are the owners paid not to generate electricity when demand is low? 

That very rarely happens. It's usually that there's a fault in the network and the power can't get to the consumer from the generators. Also, the wind power industry is being guaranteed a profit by the government so that they can borrow from the bank to build the generators. Otherwise nobody would build new plants of any description, so occasionally they get paid even when there's a problem, and no power is being produced. This is also true of other generators though, but you don't hear about it so much. And the gas powered peaker plants, they get paid hand over fist when their plants are running, very very expensive electricity.

The main problem with wind is NIMBY-type issues; but onshore is down to commercial pricing.

Have you ever lived 2 miles downwind of a 10 MW windfarm? No windfarm owner does - the racket is astonishing (on the few days when it is working, that is). Imagine an airport running 24/7 with no gaps between arrivals.

That's absolute and complete bullshit, who told you that? Windmills don't have supersonic jets like aircraft do. They're ridiculously quieter than aircraft. Aircraft are 130 dBs, whereas Windmills are like 80-90 dB when it's really windy. And even a whole farm of them are not much noisier. A lot of farmers have them on their own land. Actually, people that live near windfarms usually quite like them; the opinion polls go up after they're installed.

The other problem is that all the "good" onshore sites in the UK (i.e. sites where annual output can exceed 10% of rated peak) are already occupied. There are plenty of offshore sites remaining with 20% potential, but the cost of an offshore windmill is horrendous (you need to burn thousands of tons of coal to make the concrete foundations and steel pylon, for a start) so only the "best" sites are worth developing.

IRC it's about 1.5 times the cost at the moment, but it's coming down. But the best sites issue can be dealt with, sometimes they put a bigger windmill in.

[peppercorn]

1 tonne of steel is about 20 gigajoules... ...around 30 tonnes... ...20%, some run at 5%...95% of the time (5% maintenance time... 

Sorry, maybe I should have said 'can we have some -referenced- figures?' ... otherwise we just have proof based on assumptions/guesses don't we.