Issues Not Addressed In This Book

It would be foolish to claim too much. There are several issues that we have had to neglect. Taken together or individually, they offer sufficient reason for skepticism. A short list would have to include at least the following:

1. Data availability and quality, especially as regards capital stocks. Many time series are constructs, subject to assumptions that may be questioned. We have made the usual choices, with regard to labor (man-hours) and capital stock (perpetual inventory) without attempting independent scrutiny of the sources or the arguments. Our work does, however, depend on another unfamiliar constructed time series, namely the one for useful work. It was discussed in Chapter 4 and other publications cited. We have no doubt that the series could be improved by the application of some focused effort by historians of science and government statistical agencies.

2. The applicability of thermodynamic efficiency concepts to activities involving secondary (and tertiary) work. This issue seems straightforward at first glance, but we must acknowledge some room for argument. The primary difficulty concerns the definition of boundaries. In the case of an electric power plant, the boundary definitions are clear enough, but how should we define the efficiency of a heating system? Gas companies and furnace manufacturers define it in terms of the fraction of heat produced by the fuel that is radiated into the room (that is, not lost up the flue). This definition (known as 'first law') does not reflect the inefficiency resulting from the fact that the heat is produced by combustion at a very high temperature but only used at a much lower temperature. The high temperature heat is simply diluted in the air, which is wasteful. So why not use the high temperature heat to drive a steam engine producing electricity and heat the room with the waste heat from the condenser? Or, why not use electricity from a central power plant to drive a heat pump? All of these possibilities can be taken into account by adopting a different definition (known as 'second law'), which is the one we use. But there are further ambiguities, in the case of space heating, namely the role of insulation. Does more insulation increase the efficiency of the heating system? It doesn't affect the design of the heating system per se, but it obviously reduces the need for heat. This confusion is resolved by drawing the boundary around the room or the building rather than the heating plant. The concept of efficiency can be applied to other systems in a similar way. A well-designed road system with no traffic delays or congestion is obviously more efficient than a congested system, but to apply the concept of efficiency, one must draw the boundary around the whole system.

3. The application of thermodynamic efficiency concepts to information processing. This is a topic that we have neglected for the present, but which will obviously be more and more important in the future. The thermodynamic efficiency of a computer is not easily calculated unless one can determine the power requirement of an idealized hypothetical quantum computer with equal performance. As far as we know, nobody has attempted this feat. The problem is quite analogous to the problem of calculating the efficiency of a communications channel, originally discussed by Claude Shannon (1948). We don't (yet) know how to do it.

4. The apparent neglect of economic efficiency in the sense of improved systems organization (for example, logistics, organization). This problem is partly addressed by item 2 above, that is; as a question of boundary definition. However, the other problem is that we don't have good ways to estimate the thermodynamic work equivalent of most services. At this point, it seems likely that the problem must be approached in terms of information theory (along the lines of item 3). Some work along these lines has been published by one of the authors (see Ayres 1994a).

5. The relevance of a two-sector approach to a multi-sector economy. We discussed this question briefly in Chapters 5 and 7 but we don't even know how to formulate a multi-sector model in full detail, allowing for both substitution and complementarity of factors. We have to leave it to others.

6. The relevance of classical notions like equilibrium and optimality to human behavior. Again, this topic is obviously important but outside our scope.

7. The adequacy of existing statistical methodologies and software for the purposes of extracting worthwhile results from extremely 'dirty' data, especially as regards developing countries. Again, this problem is outside our scope.

8. The complex and evolving relationships between GDP and underlying economic concepts such as welfare and wealth. See comments below.

9. The importance of 'natural capital' (apart from mineral resources) to economic activity and especially the impact of natural resource depletion and unpaid environmental costs on production. We do have some comments about the nature of the difficulties, also discussed below.

Most of the above questions are just that. We don't have the answers now, and perhaps nobody does. They are really topics for future research.

However, a few of the questions seem worthwhile exploring briefly in this chapter, beginning with the idea of wealth and its relationship with money.

Moreover, it must be said that the problems noted above also apply without exception to the current theories of economic growth. In some cases, at least, our approach is less problematic than the 'standard' neoclassical theory.

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