Energy and the Wealth of Nations: An Introduction to Biophysical Economics 2nd Edition by Charles A.S. Hall (PDF)

Description

In this updated edition of a groundbreaking text, concepts such as energy return on investment (EROI) provide powerful insights into the real balance sheets that drive our “petroleum economy.” Hall and Klitgaard explore the relation between energy and the wealth explosion of the 20th century, and the interaction of internal limits to growth found in the investment process and rising inequality with the biophysical limits posed by finite energy resources. The authors focus attention on the failure of markets to recognize or efficiently allocate diminishing resources, the economic consequences of peak oil, the high cost and relatively low EROI of finding and exploiting new oil fields, including the much ballyhooed shale plays and oil sands, and whether alternative energy technologies such as wind and solar power can meet the minimum EROI requirements needed to run society as we know it.For the past 150 years, economics has been treated as a social science in which economies are modeled as a circular flow of income between producers and consumers. In this “perpetual motion” of interactions between firms that produce and households that consume, little or no accounting is given of the flow of energy and materials from the environment and back again. In the standard economic model, energy and matter are completely recycled in these transactions, and economic activity is seemingly exempt from the Second Law of Thermodynamics. As we enter the second half of the age of oil, when energy supplies and the environmental impacts of energy production and consumption are likely to constrain economic growth, this exemption should be considered illusory at best. This book is an essential read for all scientists and economists who have recognized the urgent need for a more scientific, empirical, and unified approach to economics in an energy-constrained world, and serves as an ideal teaching text for the growing number of courses, such as the authors’ own, on the role of energy in society.

User’s Reviews

Reviews from Amazon users which were colected at the time this book was published on the website:

⭐This very readable advanced college text by Hall and Klitgaard lays out a scientific approach to economics. This is truly a breath of fresh air for a profession mired in simplistic concepts and models that often defy common sense and that sometimes lead to equally wrong-headed predictions and policies. A prime example would be the financial crash of 2008, unforeseen by mainstream economists, and in defiance of Alan Greenspan’s belief in the magic of markets. Yet the crash itself and the current anemic recovery were no mystery at all to biophysical economists.In fact, their dictum is that the best way to understand any geological or biological process, including the human ecosystems known as economies, is to first analyze the sources and flows of energy for that process. Markets are secondary. Since the current global economy is driven mostly by fossil fuels (around 85% of all energy), and since oil is by far the most critical of these, any good oil resource geologist is in a far better position to forecast the overall performance of the economy the coming decades than all the Nobel Prize winning economists put together.The most prescient of these geologists, such as Colin Campbell, understand that the first half of the “Age of Oil” (cheap oil, growing production) is now over and that we are entering the second half (expensive oil, stagnant then declining production). And that the global economy will decline in tandem. Thus the financial crash of 2008 was due in part by the failure of world oil supply to meet the demand caused by financial inflation (oil reached $147 a barrel in July, 2008), radically decreasing the discretionary income available to the public. And now there is no more cheap oil to fuel the recovery. In fact a stronger recovery would be self-limiting, with demand once again overshooting supply. Indeed the CEO of Shell recently suggested that gasoline in the US could reach $7 to $8 a gallon by 2015, enough to cause severe recession.This text looks not only at the current global economy but at historical economies and re-analyzes them from an energy point of view. For example, land was the primary source of wealth in agricultural economies because it was the primary way to capture solar energy, via photosynthesis. Long distance trade added to wealth because the primary energy for wind-driven water transport was free. But major industry awaited the development of the ability to exploit fossil fuels (ancient sunlight). Studies of modern economies show that economic growth closely tracks energy usage, though sometimes you must include embodied energy, such as all the consumer imports from China to the US.Looked at from the point of view of energy, the short comings of traditional theories of economics are also made clear. For example, the Cobb-Douglass production function of traditional macro-economics has far more validity if the arbitrary productivity factor is replaced by energy. But Hall and Klitgaard also point out that the neo-classical way to do economics, based on a paradigm derived from 19th century physics, is severely outdated. The simulations and scenarios of the limits to growth studies, incorporating non-linear feedback loops, need to be brought into the mainstream.In this book, faith in markets is replaced by analysis of net energy, or “energy returned on energy invested” (EROI). This is simply the ratio of the useful energy obtained from a resource to the energy required for its production. This may be analyzed further in several ways. For example, the energy produced could be the energy if burned at the mine-mouth or well-head, or after processing (such as oil to gasoline), or conversion (such as coal to electricity). The energy of production could include the embodied energy of materials used in the production, as well as the direct energy. It could also include the energy required for transportation to the point of usage and other “downstream” energy costs of usage, such as infrastructure, insurance, and depreciation, yielding an “extended EROI”. Several studies lead the authors to conclude that modern civilization may require an “extended EROI” of around 10 to 1 or more. Renewables and unconventional fossil fuels typically aren’t up to the task.Turmoil ahead is a foregone conclusion. Yet the authors hold out hope from the knowledge that people can react in creative and positive ways to crises if they understand what is happening. This book is in itself a sign of hope – that the fortress of neo-classical economics is starting to crumble from the escalating bombardment by real world economists and their allies. Let’s hope that Hall and Klitgaard now set their sights on a totally new Econ 101 text that will tell students how real world economies actually function (descriptive economics) and how they could function better (prescriptive economics), especially as economic growth turns toward contraction.

⭐Unlike science, current economic theory can’t make effective predictions. “Energy and. . ” is no better. This book is not up to scientific standards. Science requires exact prediction. The authors conclude our civilization has a 25% chance of success, a 50% chance of continued mediocrity and 25% chance of disaster. Wouldn’t it be a better book if they authors describe exactly how civilization can achieve success? What a waste! Traditional economic growth will create disaster, but no model of sustainable growth is presented. No ideas about how to effectively reduce consumption. Exactly how to we manage population growth? Some garbled ideas about available energy (EROI) but no ideas how to improve the availability of green energy sources. If the EROI of wind energy is only 18 how do we increase it to 25? Do we improve bearing life or are lightning protection systems inadequate or are generator windings the problem? The book is totally silent on how to stop the doomsday scenario. People who advocate better policy making should present exact policy alternatives to law makers and other responsible authorities. Guess work, hope and fear are not an option.Energy is not an economic theory. The authors plot energy growth and assume it predicts the economy. Ray Dalio plots population growth to predict economic growth. I plotted phosphorus consumption to show economic growth. None of this is predictive. It is curve fitting. May as well use a space-time diagram of the expanding universe to predict the economy.The book has an effective critique of neo classical economics (NCE) and should be read for that purpose and skip the rest.

⭐I am mainly writing this review to warn everyone that this is probably the most poorly edited book they’ll ever read. There are loads of typos, misspellings, sentence fragments, run-ons, awkward phrasing, and other errors that the editor should have caught. It seriously impacts the reader’s ability to absorb what is otherwise a great book. Another mistake the editor, proof readers and authors all make is citing things like “sustainablemiddleclass.com” for US Census and BEA data. That is pretty embarrassing. Somebody should have known to go to the source for this data, not some random web site that apparently doesn’t even exist anymore.All that said, I still gave the book four stars. The authors are on to something, and the ideas they express are important. They should get this work republished by a publisher who will give them a proper edit.

⭐The authors painstakingly re-state their position throughout, much like a textbook.So, eventually, your convinced by their argument because you’ve been beaten cornered and reminded of it over and over.

⭐I am an educator of environmental science and I would say this is the most important book I have ever read that pertains to economics and the environment. I wish we could make this mandatory for every American to read.

⭐Classical economics assumes what is not true in order to pretend to mathematical rigor. This book tries to wake us up to what is real, and how we can no longer afford to whistle past the graveyard. I appreciated the narrative approach, and the grounding in biophysical reality. This is a serious attempt at raising reality for all to see.

⭐author broke down all life,affluence and civilization to its fundamental form….the flow of energy. Should force mainstream economics to alter its approach.

⭐integrated approach to economic analysis. the role of energy and the decline of it for the society as a whole is described

⭐This book might look expensive, but I think it’s really good value. Probably the most important book I’ve read in decades. I believe that most of the economic and political history of the last century relates to the role of cheap energy.Before reading this book I’d read books on oil and politics that made little sense. Each book repeated the UN prediction that from 2050 the world’s population would fall (after a century of exponential growth). Finally in this book that made sense – “cheap energy” will decline precipitously in the 20 years leading up to 2050. IMO the “climate change” debate is the distraction from what is really imminent. The politicians know what is in this book, but they don’t want the public to know (hence the ridiculous emphasis on climate change, when the end of cheap energy is the true looming crisis).The amount of information in this book is extraordinary (with an incredible amount of data and charts). I think there’s perhaps too much on economics (but maybe since I have read lots on economics that’s just my perception, those who have not studied economics might need the groundwork).It’s strange that this book is only available as a hardback and marketed to science students. Every thinking person should be reading this and asking themselves “how do I prepare for what’s coming in the next 20 years”. That’s no time at all — we’re now 20 years since 9/11, and that time has gone in the blink of an eye.After reading this book I pick up a book on Permaculture, published over 30 years ago. What did I find on the first page? A discussion about the laws of thermodynamics and the pivotal importance of energy from the sun.

⭐An extremely important book describing the importance of energy in all aspects of human activity. The book is accessible to a technical expert, academic or anyone with a basic High School education who has an interest in energy related issues. It is in my opinion a work of genius in that is explains complex ideas and theories in the simplist possible terms which force the reader to view the world and how it works in a fundamentally new way. It is truly enlightening.

⭐If you want to know the future, read this book…

⭐I have been waiting several years for Messrs Hall/Klitgard to complete and publish their bio-physical economics book and it was well worth the wait!Michael Edwards

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