Today's Idea: The Economy as a River

In school, they trained us to think of the Economy in terms of mathematical models. But in my own mind, I have an analogy for the economy that I think works really well. My analogy is that economies global, national and local can all be thought of as rivers (or one giant river). They're rivers of economic activity flowing past all of us individuals and companies.

Our job, as far as making a living anyway, is to divert some of that economic activity our way. The more of the activity you can divert your way, whether it be products, services or even just money itself, the more of the flow you can draw off for your own use.

Now, most of us, frankly, are content to sit by the shore or in the flow itself and take whatever activity comes our way and let the river determine our financial fate. Others take actions to divert some of the activity past them and/or their companies. Some people have talents or skills that place them in parts of the river where the flow is very large. Others work very hard and still never get much activity flowing their way. Others find themselves in economies where the flow is just a trickle. There's not much they can do as individuals but survive off the trickle.

There's not much you can say about the merit of what one person earns over what another earns. You can say that some do a much better job than others at diverting the river toward themselves than others. You can also say that some take a certain talent or skill and make the most of what the river passes through that ability. There's no one formula that works, and the scary part is that the river is ever-changing. So what worked in one era and made tons of money won't work at all even a decade later (or even less!). That goes for both companies and individuals (employees). It's a little scary. But it also means that there's no long term sentence that says you can't find a way to divert the flow to yourself in the future, whether you have before or not. Good luck!
Kyle
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The Hourglass Model of Energy Economics

As I’ve started to connect with the community of people who are interested in topics regarding the “end of the world as we know it,” I have consistently encountered a fear that the system that we currently live within is unsustainable. This same fear is mirrored in a variety of other discussions I’ve encountered over the years as well. Whether the threat comes from the government and/or politicians, corporations, the media, the culture, etc. a lot of people think the path we’re on can’t continue and we’re headed for a crisis of global proportions.

I share this fear, and I would like to share with you with the framework within which I conceptualize the crisis. At some point in the late 90’s, I came across a book called “Beyond Growth” by Economist Herman Daly. Within Daly’s book, I found a visual model that was simple, but so profound that I continue to think of the world economy, the human race and human society as existing within the model. It starts with an hourglass. The hourglass was actually developed by Daly’s mentor Georgescu-Roegen, and it represents the energy source upon which not just all human life, but all earth-bound life depends – the energy of the sun. Within the top half of the hourglass is what’s called “low entropy” energy emanating from the sun toward earth. It’s helpful for me to substitute the word “usable” for Daly’s term “low entropy” and also “used up” for his term “high entropy”, which is at the bottom of the hourglass (that substitution avoids a long discussion of physics). The energy passing through the very thin tube of the hourglass represents the limited flow of solar energy in our direction every day (or year, or decade, etc.). Through most of human history, we lived completely dependent upon and limited by the flow of solar energy that came through this tube and upon the plants and animals that convert this solar energy into a form we humans can consume.

We humans are a very clever species, however, and we have recently (on the scale of human history) figured out that there’s another form of energy that we can use. This energy is contained in deposits of fossil fuels, most importantly oil and natural gas. In Georgescu-Roegen’s model, these fossil fuel deposits are represented as a reservoir of “low entropy” energy that is stuck to the inside of the lower half of the hourglass and which has its own flow from “usable” to “used up”. We have been steadily but rapidly increasing this flow since we first identified fossil fuels as usable energy. The stored energy reservoir is far more limited in total than the energy from the sun. We humans do, however, have a much greater level of control of the flow of energy out of the reservoirs within which it is stored and into our economy to be used.

To the hourglass, I would add a couple of other energy sources that are relevant and usable (wind, geothermal, tidal), but adding them doesn’t detract from the usefulness of the model.
The implications of this model are clear and important:
1. In the short term, the size of the human population and its economy are limited absolutely by the flow of energy that is available to us as “low entropy” or usable (whether directly from the sun or from our fossil fuel reservoirs).
2. It is inevitable that in the not-so-distant future we will have to wean our society and economy off of the flow of fossil fuel energy and back onto the other flows of energy.
3. In the long term, the size of human population and economy are limited absolutely by the flow of energy available from the sun and the other more perpetual (non-depletable) sources. In my mind, the sooner we do this, the better it will be for all of our descendants, because it will allow us to gauge the point at which our population becomes too large.
4. Given that we also hope to allow for future generations of the human population, we will have to limit ourselves even further because of the “high entropy” component to the model – it’s called waste or garbage. At some scale, the earth’s capacity to process the sun’s energy into fuel for our economy is degraded by all that garbage. In my opinion, this is the problem we already have faced and are facing now. From air pollution to soil erosion to habitat destruction to climate change, human activities are affecting the way the world around us goes about its daily business. Have we hit a tipping point where the world has “had enough”? I don’t think so, but I am pretty sure there is such a point and we should be working very hard to avoid hitting it.

The reason I wrote my novel Fortress Beverly Hills was partly to help wake up our society as a whole to the notion that we cannot simply keep going on the path we’re on, which is to grow both our population and our flow of fossil fuel usage endlessly. I am convinced that if we stay on this path and continue to rely heavily on the flow of fossil fuels that some event or combination of events will come along and force us off the path, possibly violently. I wrote my protagonist as a solar engineer to represent the idea that there is a solution that comes from the sun. I don’t know that my particular conception of a photovoltaic array supplying food is realistic (probably not), but the idea was for Ed to be a placeholder for all technologies that shift us away from our reliance on fossil fuels. It’s going to take hard work and I’m afraid a lot more cooperation at the large-scale level (either government or corporate) to make it happen. But maybe not. We’ll see. Hope this model provides food for thought for folks trying to understand where we are and where we’re going.
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