oil extraction: (capital) + (skilled labour) + (machinery) + (oil fields) -> (crude oil)
(oil fields) cannot be modellised as an output. Thus you cannot close your model. The question thus becomes: what input can you replace anything that depends on the input (oil fields), so as to finally close the matrix? In the long run, we're all dead. John Maynard Keynes
I'm sure oilco's geologist have models of the return on investment of this. We now the curve for the new finds since 100 years, which is logistics with a peak in the sixties, we could guesstimate the amount of cash put in exploration by the majors (I don't think the national oilcos did a lot of exploration until recently, and their playing field is often limited to their borders).
Put in a fudge factor <<1 to model the fact that there has been more continental crust explored than is left to explore and that it will get worst as more cash is poured in the effort.
Wild yet low-risk bet: over time, an exponentially growing amount of cash will be spent to discover an exponentially shrinking amount of oil fields (by cumulative size, the number of stranded fields will be very large on the contrary). So I think we could write:
K.cash -> X bbl oil fields where K=exp(-big time the time integral of oil fields already discovered at the moment under consideration) Pierre
an oil field is the result of plenty of cash and time, spent on hardware and staff roaming hostile parts of the planet in search for oil.
That's covered by capital, machinery and labor inputs. Ultimately, you still need the actualg geological structure, and that one is not going to be an output in a timeframe that makes sense for a purposes. Just define "oil field" in a narrow sense, and you bump against that problem again. In the long run, we're all dead. John Maynard Keynes
Of course, we are not in a pure Leontieff model since the coefficient of oil discovery will vary over time. The oil itself will change also, making refining less efficient, etc...
But this was to be expected: we are modeling a depletion process, which is irreversible just like entropic decay. The pure leontieff model is reversible if you keep all coefficients constants, it is always conceivable to return to a previous state of equilibrium. Which will not be possible with oil: once it's all CO2 in the stratosphere we won't be able to drive so many hummers... Pierre
Suppose we wanted to assign a cost to the raw material. Several choices come to mind:
Which gives another option: 4. The cost to extract the same amount of material via recycling.
Even these options assume an adequate supply of energy to do something like recycling. The amount of Tantalum in the typical mobile phone is probably on the order of a few grams, how much does it cost to separate it from all the other elements? Obviously at current labor and energy costs it is not economical.
We need new economic models that take into account the finiteness of the plant. So far these are not forthcoming. Policies not Politics ---- Daily Landscape
3 might play a role if there is decisive regulation to modify the equation (but will still just be a artificially modified version of 2 or 4) In the long run, we're all dead. John Maynard Keynes
I have alluded to the parallel with chemical equations in the diary, and developed it in a reply to Technopolitical in a parallel subthread. If Chemistry can take into account rates of reaction, and the depletion of the reactants, why can't we? The equations just describe the processes. There are no cost anywhere yet, I haven't even written down the productivity coefficients explicitly.
Like I say in the reply to Technopolitical, what I want to take away from Leontief analysis is the "graph" of inputs, outputs and processes. Those whom the Gods wish to destroy They first make mad. -- Euripides
It's a pretty idea, but it doesn't model the fact that the depletion of reactants, and the creation of pollutants, has consequences for the model. Which means these consequences - which are not trivial - are ignored.
You could say 'Yes, but you can include them in the model.'
But you can't. For example - if you model CO2 as an output, you may (arguably) get the right figure for the amount of CO2. But you will get no information about the impact of CO2 on the environment, because you'd need to include the entire ecosystem, or at least a reasonable analysis of the economic outputs that CO2 produces.
Since no one agrees what those outputs are, you have a problem.
So this is yet more toy economics which - as usual - pays no attention to non-financial realities. And given where we are now, this is a bad thing, not a good one.
Economists and business majors need to be trained to think that externalities are central to any useful model, not peripheral to it. This does the opposite - it creates an illusion of understanding, which will tend to reinforce a distant FT-length view of what's happening in the physical world.
The model pays attention to whatever you put in it. If you want to include the carbon cycle in the model you can. You are limited by your knowledge of the carbon cycle, just like you're limited by your knowledge of specific sectors of the economy.
Is it actually possible to improve our understanding of the carbon cycle and of the climate system to reduce the size of the "problem" that "disagreing on the outputs of CO2" causes, or not? If this kind of stuff is unknowable I would like to know why.
Do you actually think understanding our economic (and ecological) system is impossible?
Even if you don't have information on the environmental impacts of pollution you could include "cleanup" as a sector of the model and ask yourself what would happen if you demanded that all pollution be cleaned up. For instance, what does a carbon-neutral economy look like? If there are econometrists working for governments that have relatively faithful Leontieff models of their countries' economies, they're actually rather close to answering the question of what a carbon-neutral economy looks like for their country. I doubt anyone is asking them that question. Those whom the Gods wish to destroy They first make mad. -- Euripides
Well, yes. Quite.
So you have a model which isn't actually an - er - model?
What's your definition of a model, exactly? I know that if I use standard models (not to be confused with The Standard Model) in circuit design or bridge building, I'll get an answer that approximates reality in a useful way, subject to some minor and predictable constraints.
When I look at ideas in economics, after I get over the 'You cannot be serious?!' stage, that kind of precision seems somewhat lacking, except for a very tiny subset of very simple problems.
I think it's a much harder problem than it looks, because unlike engineering or chemistry, economics is mostly psychology and politics.
And as for ecology - ecology is hard. It's much harder than most people seem to even begin to realise. Ironically I think the Leontieff approach is a lot more applicable to ecology than to economics, because the networks and energy flows in an ecosystem don't depend on anyone's opinion. (At least, not until fairly recently.)
What bothers me is that this modelling seems like an appeal to authority, and is only superficially related to the modelling done in real science.
I haven't looked through acres of papers, but I would be mightily surprised if I couldn't find at least one paper that used this model to 'prove' that raising the minimum wage would create unemployment, and another that 'proved' that it wouldn't.
industrial agriculture: (capital) + (labour) + (soil) + (fertilizer) + (fuel) + (sunlight) + (water) -> food
If we want to understand the likely impacts of peak oil, we can either pull things out of thin air or try to undestand on a more concrete level what the flow of oil through the economy actually works. And though that has a psychological and political basis, it is not a psychological or political question. How the flows can be modified is a partly technical, party political, and partly psychological, question, I'll give you that. However, once again, I am interested in the physical constraints that "sustainability" imposes on economics. Those whom the Gods wish to destroy They first make mad. -- Euripides
We need new economic models that take into account the finiteness of the plant. So far these are not forthcoming.
Take, for instance:
agriculture: (capital) + (labour) + (land) + (sunlight) -> (food)
agriculture: (capital) + (labour) -> (food)
The way this is done is by building a matrix whose components are "the amount of (input) needed to produce a unit of (output)". Call this A. Then, if you know the desired level of output (call it x), the necesary inputs (call them y) are given by matrix multiplication y = A x. If x is the (desired? actual?) level of production, y is the internal consumption, that is the part of the produce that is consumed just "to keep the machine going". The quantity x - y is the net product, that is how much is available for final consumption or exports (or storage?). If a component of x - y is negative, you need to import, or have a shortage.
So if "new oil fields" is a factor in the production of "crude oil" you can use the linear model to figure out how many new fields you have to find ("import") in order to meet a given level of demand. Those whom the Gods wish to destroy They first make mad. -- Euripides
