Principles of Ecology: Resources and economic growth Lecture II November 11, 2010 Karl Seeley, PhD...

Principles of Ecology:Resources and economic growth

Lecture IINovember 11, 2010

Karl Seeley, PhDHartwick College, Oneonta NY

• Processes of economics– Markets link distribution, allocation, and

production• Modern growth

– Investment, innovation, and resources• Industrial revolution

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”

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

“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

Trees

Labor

Land

Tools

Palace

Meat

Grain

Trees, labor, tools

Labor, land, tools

Land, labor, tools, trees

Nobles

Peasants

Abroad

Grain

Palace, meat,grain

Grain, (meat)

Luxuries

Investment

Production

Allo

catio

n

Dist

ributi

on

Trade

Processes of economics(in blue)

OutputsInputs Final users

Consumption

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

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

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)

Simple agriculture, with manufacturing

Sun AnimalsPlants

• All economic activity is about using human energy for a combination of

Hum.

Manufacturing

– 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

Tools, etc.

Better human ability to capture, control, and apply energy

Trees

Labor

Land

Tools

Palace

Meat

Grain

Trees, labor, tools

Labor, land, tools

Land, labor, tools, trees

Nobles

Peasants

Abroad

Grain

Palace, meat,grain

Grain, (meat)

Luxuries

Investment

Production

Allo

catio

n

Dist

ributi

on

Trade

Processes of economics(in blue)

OutputsInputs Final users

Trees

Meat

Grain

Trees, labor, tools

Labor, land, tools

Land, labor, tools, trees

Labor

Grain, (meat)

Tools

Palace, meat,grain

Grain

Labor, land, tools

Land, labor, tools, trees

Trees, labor, tools

Land, labor, tools, trees

Trees, labor, tools

Consumption

Processes of economics(in blue)

Trees

Labor

Land

Tools

Palace

Meat

Grain

Trees, labor, tools

Labor, land, tools

Land, labor, tools, trees

Nobles

Peasants

Abroad

Grain

Palace, meat,grain

Grain, (meat)

Luxuries

Investment

Production

Allo

catio

n

Dis

trib

ution

Trade

OutputsInputs Final users

Trees

Meat

Grain

Trees, labor, tools

Labor, land, tools

Land, labor, tools, trees

Labor

Grain, (meat)

Tools

Palace, meat,grain

Grain

Labor, land, tools

Land, labor, tools, trees

Trees, labor, tools

Land, labor, tools, trees

Trees, labor, tools

The processes of economics are supported by the processes of ecology

The economic process is constrained by the functioning of the ecosystem

Trees

Labor

Land

Tools

Palace

Meat

Grain

Trees, labor, tools

Labor, land, tools

Land, labor, tools, trees

Nobles

Peasants

Abroad

Grain

Palace, meat,grain

Grain, (meat)

Luxuries

Investment

Production

Allo

catio

n

Dist

ributi

on

Trade

OutputsInputs Final users

Trees

Meat

Grain

Trees, labor, tools

Labor, land, tools

Land, labor, tools, trees

Labor

Grain, (meat)

Tools

Palace, meat,grain

Grain

Labor, land, tools

Land, labor, tools, trees

Trees, labor, tools

Land, labor, tools, trees

Trees, labor, tools

Consumption

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

Reallocation

Steel, computer chips, etc.

Production of machinery for Hummer

Production of machinery for Super-Prius

Capital to make Hummers

Production of Hummers

Capital to make Super-Priuses

Production of Super-Priuses

Consumption of Super-Priuses

Consumption of Hummers

AllocationInputs Production Distribution Consumption

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?

Cheaper productionP

Q

If you build the necessary machines,Supply curve for stuff in general moves to the rightPrice may fall somewhat, but definitely sell a lot more

Make more moneyWhat makes for cheaper production?- Cheap resources- Technological innovation

Output in general

The growth of capitalCheaper production methods mean that new capital will be highly profitableSo demand for capital …… increasesCheaper production methods also mean that the supply of capital …… increases

P

QCapital

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, …

Capital and allocation

• Profitability of investment:– Shapes distribution, toward investment

• Displacing consumption

– Increases capital– Increases availability of resources

Allows more productionBoth consumption and future investment can

increase• Investment is a physical process tied to growth

Allocation and resources

• Allocation is done out of what’s available• Availability is interaction among:

– Nature– Exploration– Resource discovery– Innovation– Investment

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 boomJeffrey Sachs, The End of Poverty: Economic Possibilities For Our Time

(2006)

The growth cycleSaving

Investment

Increased, improved

capital

Increased outputOutput

Consumption

B. InnovationA. Innovation

The growth cycle, with resourcesSaving

Investment

Increased, improved

capital

Increased outputOutput

Potential resourcesAvailable resources

Capital

Consumption

B. InnovationA. Innovation

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

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

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

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

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

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

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

http://www.norwayheritage.com/gallery/gallery.asp?action=viewimage&imageid=1562&text=&categoryid=16&box=&shownew=

The Erie Canal and the Little Falls on the Mohawk River

http://news.bbc.co.uk/media/images/39285000/jpg/_39285689_canal300245.jpg

http://en.structurae.de/files/photos/64/lgv_est_europeenne/p1100439.jpg

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:

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:

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:

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

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

Both pictures from http://campfire.theoildrum.com/node/6103

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

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

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

Further steps

• 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

•Contribution to growth•How it depends on human action

•How it depends on resources

•How it depends on previous stages

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