Energy and economics

A somewhat frequent criticism of common economic theories and frameworks is that they are isolated from real world concerns such as energy and resource constraints: that the concept of limited resources, and ideas like the second law of thermodynamics, simply don’t seem to affect the economics at all. You come across this criticism primarily at what might be called the greener fringe, which means that it is rather poo-poohed by some.

Economic theory is, of course, just a model of the real world. It’s bound to simplify and abstract some aspects, and concentrate on others. And many economists don’t consider resource and environment issues to be of primary concern. But what might economics look like if it did take energy (and other resources) as fundamental to the model, rather than as extras which it would be nice to take into account? Gail Tverberg has an interesting piece in which she explains how she sees energy use as a primary driver of economic growth. It’s a good read, and makes a lot of sense. I’m looking forward to her follow-up piece which she says will talk about debt fits into the picture.

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