TY - JOUR A1 - Kümmel, Reiner A1 - Lindenberger, Dietmar T1 - Energy, entropy, constraints, and creativity in economic growth and crises JF - Entropy N2 - The neoclassical mainstream theory of economic growth does not care about the First and the Second Law of Thermodynamics. It usually considers only capital and labor as the factors that produce the wealth of modern industrial economies. If energy is taken into account as a factor of production, its economic weight, that is its output elasticity, is assigned a meager magnitude of roughly 5 percent, according to the neoclassical cost-share theorem. Because of that, neoclassical economics has the problems of the “Solow Residual”, which is the big difference between observed and computed economic growth, and of the failure to explain the economic recessions since World War 2 by the variations of the production factors. Having recalled these problems, we point out that technological constraints on factor combinations have been overlooked in the derivation of the cost-share theorem. Biophysical analyses of economic growth that disregard this theorem and mend the neoclassical deficiencies are sketched. They show that energy’s output elasticity is much larger than its cost share and elucidate the existence of bidirectional causality between energy conversion and economic growth. This helps to understand how economic crises have been triggered and overcome by supply-side and demand-side actions. Human creativity changes the state of economic systems. We discuss the challenges to it by the risks from politics and markets in conjunction with energy sources and technologies, and by the constraints that the emissions of particles and heat from entropy production impose on industrial growth in the biosphere. KW - energy KW - economic growth KW - output elasticities KW - entropy production KW - emissions KW - optimization Y1 - 2020 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:bvb:20-opus-216275 SN - 1099-4300 VL - 22 IS - 10 ER - TY - JOUR A1 - Kümmel, Reiner A1 - Lindenberger, Dietmar T1 - Energy in Growth Accounting and the Aggregation of Capital and Output JF - Biophysical Economics and Sustainability N2 - We review the physical aggregation of value added and capital in terms of work performance and information processing and its relation to the deflated monetary time series of output and capital. In growth accounting it complements the time series of labor and energy, measured in hours worked per year and kilowatt-hours consumed per year, respectively. This aggregation is the conceptual basis on which those energy-dependent production functions have been constructed that reproduce economic growth of major industrial countries in the 20th century with small residuals and output elasticities that are for energy much larger and for labor much smaller than the cost shares of these factors. Accounting for growth in such a way, which deviates from that of mainstream economics, may serve as a first step towards integrating the First and the Second Law of Thermodynamics into economics. KW - aggregation KW - cost-share theorem KW - economic growth KW - energy KW - entropy KW - output elasicities Y1 - 2020 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:bvb:20-opus-241135 VL - 5 ER - TY - JOUR A1 - Kümmel, Reiner T1 - The Impact of Entropy Production and Emission Mitigation on Economic Growth JF - Entropy N2 - Entropy production in industrial economies involves heat currents, driven by gradients of temperature, and particle currents, driven by specific external forces and gradients of temperature and chemical potentials. Pollution functions are constructed for the associated emissions. They reduce the output elasticities of the production factors capital, labor, and energy in the growth equation of the capital-labor-energy-creativity model, when the emissions approach their critical limits. These are drawn by, e.g., health hazards or threats to ecological and climate stability. By definition, the limits oblige the economic actors to dedicate shares of the available production factors to emission mitigation, or to adjustments to the emission-induced changes in the biosphere. Since these shares are missing for the production of the quantity of goods and services that would be available to consumers and investors without emission mitigation, the “conventional” output of the economy shrinks. The resulting losses of conventional output are estimated for two classes of scenarios: (1) energy conservation; and (2) nuclear exit and subsidies to photovoltaics. The data of the scenarios refer to Germany in the 1980s and after 11 March 2011. For the energy-conservation scenarios, a method of computing the reduction of output elasticities by emission abatement is proposed. KW - economic growth KW - entropy production KW - emissions KW - critical limits KW - pollution functions KW - output elasticities Y1 - 2016 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:bvb:20-opus-163185 VL - 18 IS - 3 ER - TY - JOUR A1 - Kümmel, Reiner A1 - Lindenberger, Dietmar T1 - How energy conversion drives economic growth far from the equilibrium of neoclassical economics JF - New Journal of Physics N2 - Energy conversion in the machines and information processors of the capital stock drives the growth of modern economies. This is exemplified for Germany, Japan, and the USA during the second half of the 20th century: econometric analyses reveal that the output elasticity, i.e. the economic weight, of energy is much larger than energyʼs share in total factor cost, while for labor just the opposite is true. This is at variance with mainstream economic theory according to which an economy should operate in the neoclassical equilibrium, where output elasticities equal factor cost shares. The standard derivation of the neoclassical equilibrium from the maximization of profit or of time-integrated utility disregards technological constraints. We show that the inclusion of these constraints in our nonlinear-optimization calculus results in equilibrium conditions, where generalized shadow prices destroy the equality of output elasticities and cost shares. Consequently, at the prices of capital, labor, and energy we have known so far, industrial economies have evolved far from the neoclassical equilibrium. This is illustrated by the example of the German industrial sector evolving on the mountain of factor costs before and during the first and the second oil price explosion. It indicates the influence of the 'virtually binding' technological constraints on entrepreneurial decisions, and the existence of 'soft constraints' as well. Implications for employment and future economic growth are discussed. KW - economic growth KW - technological constraints KW - output elasticities KW - energy Y1 - 2014 U6 - http://nbn-resolving.de/urn/resolver.pl?urn:nbn:de:bvb:20-opus-118102 SN - 1367-2630 VL - 16 IS - 125008 ER -