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Microeconomics as Newtonian Does Not See Limits 

This page explores the different perspectives on the physical reality regarding this Spaceship Earth on which we Travel around the Sun.  The nature of that physical reality affects which kind of economics will work best in provisioning ourselves as Travelers, and achieving a sustainable (at least until the Sun burns out its nuclear fuel!) system.  Intriguingly, Microeconomics Framing (MF) and Single Interest Theory (SIT) suggests only resource that might be limiting is human ingenuity, invention, and technological development, with the Self-interest only driven Market  providing the incentives and paying the way to the saving technology being put into operation. 

 

Also, due to every process being reversible... in effect, everything can be "fixed", "turned around" with enough human ingenuity... everything also is treated as independent.   Due to human ingenuity (Simon, 1981),  thermodynamic limits have no meaning:  MF and SIT rests in a Newtonian world, which operates much like the balls on a billiard table, which we just need to be reset and redirect occasionally,  at the margin, as the Market finds best.  As natural resources become more scarce, the Price will rise, which will cause the reset, focusing on other resources and technologies to bring them into the system.  There are no "walls" as defined (see Figure) in thermodynamics.

 

Referring back to What is Dual Interest Theory, using isocurves, in a MF and SIT view of Spaceship Earth, each production process has its own, independent set of isoquants, and every consumption process has its own, independent set of indifference curves: There is no such thing as overlapping isocurves.  So, the focus with MF and SIT is on individuals acting strictly on their Self-interest in the Market, the Wants and Needs (Demand in the Market) and the Business Enterprise (Supply in the Market), with all Value revealed as Price in the Market (see boxes above the Arrow in this Figure). The Government plays little to no role, other than helping manage and enforce private property rights (in the Institutions box below the Arrow). 

 

Technology is viewed as playing a substantive role, as it not only pushes the Arrow forward, but, can easily  push it back, reverse bad decisions, as needed.  The Market drives it.  The Market provides for everything, including all basic research, applied research: Government plays no role in strict versions of this framing. Microeconomics in the extreme application of it points to pure capitalism, everything on the Spaceship Earth held in Private Property (the main content of the Institutions box), which also would mean "no taxes, no price ceilings, no price floors, no public parks, no central banks, no wars of aggression, no immigration restrictions, etc. (Munger and Villarreal-Diaz, 2019, p. 351, quote from Labeit, 2009).” 

 

In MF and SIT, the Arrow is driven, otherwise located, by the invisible hand of the Market; it is presumed that the Self-interest only Market can accomplish everything that needs to be done.  The Market is the only Forum of consequence, as Government is  reduced to a shell of what was intended by both Smith (1759; 1776), the "Father of Economics," as well as the "Founding Fathers" who wrote the US Constitution which formed the Administrative, Legislative and Judicial branches of the US Government, all of whom saw a key role for Government: There was a need for good integration in Market&Government in order to achieve a liberal democracy based, good capitalism.  These Other Forums (see the Figure) have little to no role in the Microeconomics... MF and SIT... based world.  

Metaeconomics Based in Thermodynamics Sees Limits

 

The Metaeconomics based Metaeconomics Framework (MEF) and Dual Interest Theory (DIT), in contrast, sees a physical reality described as a  Thermodynamic world, a Spaceship Earth with limits, with many irreversible processes. This is depicted in the Figure by the Arrow heading to ultimate limits described in 1st and 2nd Law Thermodynamics.  The 1st Law points to the ultimate upper limit on how much waste the Spaceship Earth system can hold and re-process, recycle... in that neither mass nor energy can be destroyed:  We just change the form, so both all of the mass and energy is still here, even after we "use" it.  The 2nd Law points to the inexorable move to maximum entropy, described by the day the Sun explodes (in about 2.5 billion years, the physicists tell us) and destroys essentially all life on the Spaceship (so, we best invest in space travel technology, and be looking for, and moving to, other Spaceship Planets, out there). 

 

So, due to nearly every process in  effect being irreversible, no matter the level of human ingenuity, everything is interdependent.  Wastes in both consumption and production are always released, and every process uses energy, moving the system down the path toward maximum entropy, so, like depicted in the simply analytics using isocurves, there are always overlapping isoquants and indifference curves.  Interdependence and social costs related thereto are both pervasive, not just an occasional event like Microeconomics suggests.

 

This Arrow also suggests a Not Pure Capitalism, with Government playing many substantive roles.  The Technology and Institutions boxes below the Arrow would not only work to drive the Arrow, but also to Temper and Condition its direction and pace.  This Government would recognize there are 1st and 2nd Law limits, which would lead to having entities like the Environmental Protection Agency to help manage the reality that the human economy (just like the natural economy) cannot get rid of energy or matter, just changing its form, and entities like the Department of Energy involved in helping nudge the system onto a renewable energy path, recognizing the reality of a far more rapid pace to maximum entropy from using the non-renewable energy resources with abandon, as if they are infinite. Travelers on this Spaceship Earth would also be involved in paying the Price/Taxes of  Government such that it could be viable partner in ensuring the Arrow is paced appropriately, pragmatically speaking. 

 

The Market would still be playing a substantive role, but now it would be Tempered by the Government, with attention to the need for this Government to be part of an Empathy Economy: Empathy, through actively engaging it,  is the not-invisible hand (and, like Rifkin, 2009, points out.. empathy is actually the invisible hand of Microeconomics, too: it is just not admitted, recognized, or made part of the analytical machinery). Also, in Metaeconomics framing at least the empirical question  is asked:  Just what are the best, pragmatically speaking, roles for the Other Forums (represented generally in the Administrative, Legislative and Judicial branches of the US Government),represented in the Figure below the Technology and Institutions boxes,  relative to the role of the Market Forum?  Again, Metaeconomics asks the empirical question about the best balance in Market&Government, whereas Microeconomics presumes Market only is "best," whether it stands the empirical test or not, making it more of an ideology than a science to guide empirical inquiry.

Comparing and Contrasting Microeconomics and Metaeconomics

As Schumacher (1973) characterized it,  mainstream neoclassical economics as represented in Microeconomics is focused on “…optimizing the location of the chairs on the deck of the Titanic”   due to focusing on self-interest driven Market (see Figure) only approaches. The Titanic is reflected in Thermodynamic limits (see 1st and 2nd Law Limits depicted in the Figure), e.g. looking at  contemporary issues, the Titanic is the limit on the capacity of the atmosphere, historically keeping this Spaceship Earth habitable, being pushed beyond the limit with excessive releases of greenhouse gases, especially carbon dioxide from burning the carbon fuels, leading to huge changes in climate, weather, and the ecosystems responding to same. 

 

Metaeconomics suggests, that at minimum, the Other Forums (heavy dose of Institutions, especially the Moral Community, in said Forums, see Figure)  are likely essential to Temper and Condition the Market which is the primal force in driving the path and pace of this Arrow. Using  a Market only frame like MF will likely,...albeit this is an empirical question that needs work... lead us into the most dangerous Tragedy of the Commons ever faced by the Travelers on this Spaceship Earth (Pinker, 2018;  for more on how to avoid such Tragedy, using Metaeconomics Framing and Dual Interest Theory to guide the empirical work necessary to address the issue, see Lynne et al., 2016). 

 

Yet, giving Microeconomics its due, it is conceivable that if every producer and consumer in the Market was aware of the 1st and 2nd Law limits, and decided it was in their self-interest to pay attention to said limits, the Market could redirect and pace the Arrow, in this case toward building a low(er)-carbon economy.  This is not happening here in 2019, with plans on the part of the oil and gas, and coal industry to expand their production, growing the carbon supplying industry in the US faster than anywhere else on the Spaceship by 2050.  This has also been applauded by the current Administrative branch of the US Government, as well as supported by many in the Legislative branch.  It seems any move to a more rational path of this Arrow, one that sees Thermodynamic Limits, is somewhere in the rather distant future for the US, and will take both a more cognizant Market and Government about thermodynamic reality.

 

As Einstein said, regarding thermodynamics:  "It is the only physical theory of universal content, which I am convinced, that within the framework of applicability of its basic concepts will never be overthrown." It is  perhaps time to include it as a base concept in  economics... as in Metaeconomics... and for those in both Market and Government to make it part of their reality.  

References

Labeit, Michael. 2009. Explaining the Difference Between Capitalism and Corporatism to Michael Moore. Economic Policy Journal, http://www.economicpolicyjournal.com/2009/11/explaining–difference–between.html.

Lynne, G.D., Czap, N.V., Czap, H.J., and Burback, M.E. . 2016. "Theoretical Foundation for Empathy Conservation: Toward Avoiding the Tragedy of the Commons." Review of Behavioral Economics  3:245-279.

Munger, Michael C. and Villarreal-Diaz, Mario. 2019. "The Road to Crony Capitalism." Independent Review:  A Journal of Political Economy  23 (3):331-344.

Pinker, Steven. 2018. Enlightenment Now: Yhe Case for Reason, Science, Humanism, and Progress. New York: Penguin Random House LLC.

Rifkin, J. 2009. The Empathic Civilization:  The Race to Global Consciousness in a World in Crisis. New York: Jeremy P. Tarcher.

Schumacher, E.F. 1973. Small is Beautiful: A Study of Economics As If People Mattered.  London:  Blond and Briggs

Simon, Julian. 1981.  The Ultimate Resource. Princeton: Princeton University Press.

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