Principles of Ecology: Resources and economic growth

1. Principles of Ecology:Resources and economic growth Lecture II November 11, 2010 Karl Seeley, PhD Hartwick College, Oneonta NY

2. Processes of economics • Markets link distribution, allocation, and production • Modern growth • Investment, innovation, and resources • Industrial revolution

3. Review of lessons from ecosystems • 1st and 2nd Laws of Thermodynamics • Species play different functions • Competition, but also co-dependence • Less energy means less activity • Physical conditions shape networks and distribution of energy stores • Ecosystems can be “subsidized” from elsewhere  Their productivity can’t be replicated everywhere • Some dependencies may not be obvious to the “participants”

4. Summary summary Potential biomass and species abundance depend on inorganic conditions Insolation, temperature, water availability, soil/weathering Ability to realize that potential depends on the functioning of the system that arises there

5. “Purpose” of ecosystems? Schneider & Sagan, Into the Cool (2005) Nature abhors a (thermodynamic) gradient The “purpose” of ecosystems (and other structures) is to degrade gradients Left to themselves, systems will tend to evolve in the direction of greater utilization of gradients Systems that do a better job will displace others

6. Grain Trees, labor, tools Labor, land, tools Land, labor, tools, trees Grain, (meat) Palace, meat, grain Processes of economics(in blue) Abroad Investment Allocation Distribution Trees Palace Trade Luxuries Nobles Labor Meat Consumption Land Peasants Grain Tools Final users Outputs Inputs Production

7. Processes • Allocation • Directing inputs toward production of different things • Production • Determines what people are able to use, for all sorts of purposes • Distribution • Consumption, Investment, Government

8. Distribution I • Consumption • Who gets to consume how much? • Of what? • Investment • Car factory? Chip factory? • Power plant? Home insulation? Wind turbines? • A factory to make wind turbines

9. Distribution II • What will government do? • More police? More soldiers? • Roads? Schools? • R&D • Govt. activities are a mix of consumption (public safety, schools, regulation) and investment (roads, weapons)

10. Simple agriculture, with manufacturing Hum. Sun Plants Animals Tools, etc. Manufacturing Better human ability to capture, control, and apply energy • Modifying materials • Controlling flows of energy • Using those controlled flows to modify materials • Using modified materials and controlled energy to express and disseminate ideas (culture) • Economics focuses on the control gates … … but neglects what it is that’s being controlled All economic activity is about using human energy for a combination of

11. Processes of economics(in blue) Grain Grain Trees, labor, tools Land, labor, tools, trees Labor, land, tools Labor, land, tools Trees, labor, tools Land, labor, tools, trees Land, labor, tools, trees Trees, labor, tools Land, labor, tools, trees Trees, labor, tools Labor, land, tools Grain, (meat) Palace, meat, grain Grain, (meat) Palace, meat, grain Abroad Investment Allocation Distribution Trees Palace Trees Trade Luxuries Nobles Labor Labor Meat Meat Consumption Land Peasants Grain Grain Tools Tools Final users Outputs Inputs Production

12. Processes of economics(in blue) Grain Grain Grain Grain Abroad Abroad Investment Investment Allocation Allocation Distribution Distribution Trees Trees Palace Palace Trees Trees Trade Trade Luxuries Luxuries Nobles Nobles Labor Labor Labor Labor Meat Meat Meat Meat Consumption Land Land Trees, labor, tools Labor, land, tools Land, labor, tools, trees Trees, labor, tools Land, labor, tools, trees Labor, land, tools Trees, labor, tools Land, labor, tools, trees Trees, labor, tools Labor, land, tools Land, labor, tools, trees Land, labor, tools, trees Trees, labor, tools Trees, labor, tools Trees, labor, tools Labor, land, tools Land, labor, tools, trees Labor, land, tools Land, labor, tools, trees Labor, land, tools Trees, labor, tools Land, labor, tools, trees Peasants Peasants Grain Grain Grain Grain Tools Tools Tools Tools Final users Final users Outputs Outputs Inputs Inputs Grain, (meat) Palace, meat, grain Palace, meat, grain Grain, (meat) Grain, (meat) Palace, meat, grain Palace, meat, grain Grain, (meat) Production Production The processes of economics are supported by the processes of ecology The economic process is constrained by the functioning of the ecosystem

13. Connecting the parts • The economy chooses what to produce by allocating available inputs and applying existing technology • You can only allocate what’s available • Availability is from interaction among nature, exploration, research, discovery, innovation, and investment • Markets are our default way of determining allocation, distribution, and investment • Politics shape government’s role in those

14. Reallocation Capital to make Super-Priuses Production of Super-Priuses Consumption of Super-Priuses Production of machinery for Super-Prius Steel, computer chips, etc. Production of machinery for Hummer Capital to make Hummers Consumption of Hummers Production of Hummers Inputs Allocation Production Consumption Distribution

15. Interconnected Markets • Changes in demands for final products drive changes in demands for inputs Markets tend to connect changes in distribution back to changes in allocation • Other systems also have to have ways of making those connections • What if changed conditions make production cheaper?

16. Cheaper production P If you build the necessary machines, Supply curve for stuff in general moves to the right Price may fall somewhat, but definitely sell a lot more  Make more money Q Output in general • What makes for cheaper production? • Cheap resources • Technological innovation

17. The growth of capital P Cheaper production methods mean that new capital will be highly profitable So demand for capital … … increases Cheaper production methods also mean that the supply of capital … … increases Q Capital

18. The virtuous circle of growth • More capital is produced; • at stable or falling prices; • leading to more demand for raw materials; • so more incentive to increase production of inputs to capital: • Coal mines, ore mines, foundries, machine works, canals, …

19. Capital and allocation • Profitability of investment: • Shapes distribution, toward investment • Displacing consumption • Increases capital • Increases availability of resources • Allows more production • Both consumption and future investment can increase • Investment is a physical process tied to growth

20. Allocation and resources • Allocation is done out of what’s available • Availability is interaction among: • Nature • Exploration • Resource discovery • Innovation • Investment

21. Growth: the standard list • Saving and investment • More capital makes workers more productive • Innovation • Better capital makes workers more productive • Trade • Each side concentrates on its relative strength • Resource boom Jeffrey Sachs, The End of Poverty: Economic Possibilities For Our Time (2006)

22. The growth cycle Consumption Saving Increased output Investment Output B. Innovation A. Innovation Increased, improved capital

23. The growth cycle, with resources Consumption Saving Increased output Investment Output B. Innovation A. Innovation Increased, improved capital Capital Available resources Potential resources

24. Stages of industrial growth • For each of the following developments, identify: • How it contributes to growth • How it depends on human action • How it depends on resources • How it depends on previous stages

25. Spread of mechanization • Allows each worker to produce a greater quantity of things • Allows more uniformity (easier substitutability), often higher quality • Innovation to design it, investment to implement it • Requires appropriate water situation

26. Canals • Reduced costs of transport • Increased benefits of trade • Cheaper access to additional resources (e.g., coal) • But can be accomplished using horses and human labor • Not yet machinery that can accomplish the work • Large investment (building canals, plus boats) • Landscape and water courses only partially surmountable • Water still has to come from somewhere to fill them

27. http://www.eriecanal.org/maps.html

28. http://www.eriecanal.org/maps.html

29. http://www.eriecanal.org/locks.html

30. http://www.archives.nysed.gov/projects/eriecanal/essays/ec_larkin4.shtmlhttp://www.archives.nysed.gov/projects/eriecanal/essays/ec_larkin4.shtml

31. The Erie Canal and the Little Falls on the Mohawk River http://www.norwayheritage.com/gallery/gallery.asp?action=viewimage&imageid=1562&text=&categoryid=16&box=&shownew=

32. http://news.bbc.co.uk/media/images/39285000/jpg/_39285689_canal300245.jpghttp://news.bbc.co.uk/media/images/39285000/jpg/_39285689_canal300245.jpg http://en.structurae.de/files/photos/64/lgv_est_europeenne/p1100439.jpg

33. Erie Canal trade, 1825 • Eastbound: • 562,000 bushels of wheat • 221,000 barrels of flour • 435,000 gallons of whiskey • 32 million board feet of lumber • 185,000 tons of eastbound cargo • Westbound: • 32,000 tons • Mostly manufactured goods http://www.archives.nysed.gov/projects/eriecanal/essays/ec_larkin4.shtml:

34. Later Erie Canal trade • 1845: 1,000,000 tons • 1852: 2,000,000 tons • 1860: 1,896,975 eastbound 379,000 westbound • 1862: 3,000,000 + (Civil War) • 1880: 4,608,651 (largest amount) http://www.archives.nysed.gov/projects/eriecanal/essays/ec_larkin4.shtml:

35. Cost savings • Before the opening of the Erie Canal, Genesee Valley wheat took 20 days to reach Albany by wagon. • The cost to move a ton of wheat was $100. • With the completion of the canal, a ton of wheat could make the trip all the way to New York City in just 10 days for only $5 in transportation charges. http://www.archives.nysed.gov/projects/eriecanal/essays/ec_larkin4.shtml:

36. Direct costs and benefits • Cost $7,500,000 to build, over about 15 years • 1862 alone: $4,500,000 in state tolls collected • 1820-1882 (toll collection ceased): $121,000,000 collected

37. Indirect benefits • Stimulus to agriculture in Great Lakes basin • Cheap food for New York City • And anywhere reachable from NYC by water • Expanded market for NYC manufacturing • And anywhere that could reach NYC by water • Cheaper manufactured goods for Great Lakes basin

38. Draft animals can pull ~10x more in a canal boat than in a cart Simple canals can be built with relatively low energy use - Early industrial ones built with animal and human labor Both pictures from http://campfire.theoildrum.com/node/6103

39. Coal in ferrous industry • Increases the supply of metal • Lower cost, greater quantity • Can be used more widely—better mechanization • Figuring out how to access and use it, building the foundries that use it • Coal needs to be accessible, found, extracted • Canals make coal more widely available

40. Improved metal working • Machines get bigger, stronger, more efficient, more reliable • New techniques allow for improved metal working • Cheap and abundant metal makes it worth inventing and implementing those techniques • That requires coal, the application of coal to metal production, and the cheap transport of coal in canals

41. Further steps • Contribution to growth • How it depends on human action • How it depends on resources • How it depends on previous stages • Group I: Increased use of metal • Group II: Increased scale of manufacturing • Group III: Coal for stationary power • Group IV: Coal for transportation • Group V: Oil • Group VI: Electricity Plastics • Group VII: Communications, electronics

42. Reading for Nov. 12, 16 • Hall, C.A.S., Day, J.W. Jr. 2009. “Revisiting the limits to growth after peak oil,” American Scientist 97:230-237 • http://www.esf.edu/efb/hall/2009-05Hall0327.pdf • Identify an important argument against the idea of limits to growth • Provide Hall & Day’s response to that argument • What is the relationship between technological innovation and resource use? • Write a paragraph with your general reaction to the article