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Fight Inflation with Community [Economics
Posted on October 29, 2022 @ 07:12:00 AM by Paul Meagher

Rising inflation is one of the biggest issues confronting us now. We are told that to stop inflation we have to increase interest rates to the point where we create a temporary recession that will eventually reduce demand that will either stop price rises or reduce prices back to more manageable levels. That is one prominent macroeconomic view of how to control inflation.

Another way you can help control inflation is through community. I was recently reminded of this when I hired a larger company who I had no personal relation with to deliver gravel to fix a road through my field that got rutted during our last concert at the farm. I hired the company because they were quick and efficient in the past and I wanted to complete the project while the weather was good. The company charged me almost $500 to deliver a 20 ton load of gravel. Luckily for my pocketbook I only purchased one load. There was a 5 day delay in delivering another load. I had to return my father-in-laws tractor which I was going to use to spread out and smooth out the gravel and decided to cancel my order for more loads at that time.

Next to my farm is a business owner who mostly does forestry related work but owns alot of machinery. He approached me after the first load was delivered and mentioned that I could probably do the job cheaper if I got the gravel from my father-in-laws gravel pit. I approached him again after I told the first company I didn't want them to deliver any more gravel. His big excavator was in a pit nearby, not my father-in-laws pit, but I wanted the job done so asked him to proceed with that gravel. He started delivering gravel and brought in a mini-excavator to form the road. He did an excellent job and at the end of the day charged me 200 dollars a load. I believe I got that rate because in this case I interact with my neighbor even if it is just to wave to him as we pass by each other in the morning, his machinery and pit were nearby the job site, and he gave me a neighborly price for his services.

In rural areas you tend to run into people more frequently and the bonds of community are built up from these interactions, sharing the same landscape, and sharing a common culture where you both are knowledgeable of the same news to talk about (like a new golf course that wants to expand into our community and the controversies surrounding it). The community is potentially an inflation fighting resource when you have need of other community members to help you with your projects.

Another case is a 12x16 foot outbuilding that I am putting up to store some farm machinery. I was thinking about getting around 12 pieces of 2 in x 6 in x 16 foot lumber for the roof rafters from a nearby hardware store that would likely charge me 2 to 3 dollars a foot for the lumber. The main reason I was thinking of going that route was because the lumber was a standard width (1.5 inches) and you can buy required hurricane ties for that width. My brother mills wood and I checked out his wood pile and he had some nice 2 in x 6 in lumber milled up. I talked to him yesterday morning about what I wanted and he came by with a load of wood that afternoon. That wood will be substantially cheaper than the wood I would have purchased at the local hardware store and the wood is also quite a bit stronger because it is milled to a true 2 in x 6 in dimension, not 1.5 in x 5.5 in that nominal store bought 2 x 6 lumber is. I should be able to buy some end wall hurricane ties to secure the rafters to the plate (the interior rafters use a different type of hurricane tie that typically only comes in a size that fits 1.5 in wide lumber) and get up to code.

You won't be able to get cheaper gas from your neighborhood gas station or groceries from your neighborhood grocery store. There are limits to how much you can use community to help you fight inflation. That does not negate the fact that there are some significant expenses that can be substantially reduced when you engage certain people in your community to assist you in your projects. I probably saved over 2500 dollars in gravel and lumber costs in the last couple of days by reaching out to my community for assistance with my projects.

I think fighting food inflation is another primary use of community. I have been on the giving end of this equation where I have allowed neighbors and family to freely harvest from my wild blueberry fields. While I could have asked for something in return, I wasn't going to be able to harvest it all and was happy that someone was getting the benefit of eating the berries.

In conclusion, in these times of rising inflation I would argue that community is an important resource in helping you fight inflation. The community isn't necessarily a bunch of people who hug each other each time they see each other. It can simply be loose associates who you interact enough with, and share some common points of interest with, that you might get different treatment than other people for goods and services, or who you might treat differently for the resources and services you have to offer.


Applying 8 Forms of Capital [Economics
Posted on May 5, 2022 @ 11:08:00 AM by Paul Meagher

In my last blog, Capital Conversion, I introduced the idea of 8 Forms of Capital.

I knew I had only touched the surface of this topic so in today's blog I want to search the net using the term "8 forms of capital" and comb through text results, image results and video results and share some of my top finds.

Googling on "8 forms of capital" brings up as a top text result this page titled Wealth: The 8 Capitals. What is interesting about the author's approach is that they take a community-level approach to thinking about capital and all the forms that it can take. I introduced the idea of 8 forms of capital at the individual level, but it can also be applied to groupings of people in a community, bioregion, urban area, etc... For those seeking to apply the 8 forms of capital beyond the individual level, this might be a good article to read.

Googling on "8 forms of capital" brings up as a top image result various images associated with the the Gitcoin Governance website. According to the Cryptopedia Gitcoin page, "Gitcoin combines open-source programming projects with a crypto payment system". I was wondering if the cryptocommunity was exploring the intersection of "8 forms of capital" and "cryptocurrency" and it appears the Gitcoin community is playing around with these ideas.

Googling on "8 forms of capital" brings up as a top video result a video by popular Youtuber Patrick Bet-David (3.4 million subscribers) who added one more form of capital (9 forms) and discussed its relationship to entrepreneurship.

In conclusion, in today's blog we took a tour around the net to see some applications of the concept of 8 capitals. We found these resources by googling "8 forms of capital" and compiling some top picks from the text results, image results and video results.


Inflation: Nature & Causes [Economics
Posted on September 19, 2019 @ 11:20:00 AM by Paul Meagher

I have been reading a book on farming called "Ten Acres Enough: The Classic 1864 Guide to Independent Farming" by Edmond Morris. You can read it online for free here.

The book reports on his first three years of farming after leaving the city and purchasing a farm. He had a family of 10 and appears to have acquired many firm ideas about farming before he ventured into owning and running a 10 acre farm.

Today there are many who will argue that you can make a good living by intensive cultivation of 1 acre. Back in 1864 I would imagine that saying you can make a good living by intensive cultivation of 10 acres seemed like an equally radical claim.

The book is interesting and well written but the main reason I wanted to mention it was because Edmond spends alot of time in the book discussing how much he made by selling certain crops and what he paid out in expenses. He summarized his receipts and expenses over three years with this report:

Edmond Morris wouldn't have written the book if he didn't think he performed quite well so I was curious to convert his profits in the last year ($1327.02) into what it might be in todays terms using measures of inflation to make the adjustment. When you do this using the CPI Inflation Calculator you get this result:

$1,327.02 in 1857 is equal to $39,133.06 in 2019

This result surprised me as I expected his profit (in todays terms) to be more. This surprise has caused me to reflect on the history of entrepreneurship and the nature and causes of inflation to try to figure out what is going on here.

Entrepreneurs have existed throughout history and "10 Acres Enough" is a book by an agricultural entrepreneur on what he did to make his farm successful. What "success" meant to an Entrepreneur in 1857 in terms of wages may be different from what it means to be an Entrepreneur today. Today we expect a successful entrepreneur to be making a high wage but back then a successful entrepreneur was perhaps happy to make enough money to live without alot of financial stress. Being able to produce all your own food (in addition to selling it) certainly helped to reduce/eliminate a major financial stress that a family of 10 would have to deal with and gave the author a hopeful and optimistic outlook on life.

Another way to think about these numbers is that the inflation calculator is not fully capturing the reality of inflation - its nature and its causes. This has lead me to reflect on some categories of expense that are not included in this financial report that we would expect to be listed in the financial report of an agri-business today: sales taxes, insurance, fuel, loan interest, new equipment, repairs, registrations/licensing/permits, etc... For entrepreneurs, new categories of expense are causes of inflation that increase our cost of living and simultaneously decrease the amount of time that can be allocated to earning income. Inflation is reflected in how time and money is allocated.

You can read about Inflation on Wikipedia for how economists talk about inflation or you can examine a financial report from long ago and reflect on that it might be telling us about the nature and causes of inflation.


Economic Development [Economics
Posted on September 26, 2017 @ 10:50:00 AM by Paul Meagher

How do economies develop over time?

A common approach to answering this question is to divide the economy into three sectors - primary (extraction), secondary (manufacturing), tertiary (services) - and track the relative number of people employed in these sectors over time. Wikipedia's entry on the three sector economy offers these statistics:

First phase: Traditional civilizations

Workforce quotas:

  • Primary sector: 65%
  • Secondary sector: 20%
  • Tertiary sector: 15%

Second phase: Transitional period

Workforce quotas:

  • Primary sector: 40%
  • Secondary sector: 40%
  • Tertiary sector: 20%
Third phase: Tertiary civilization

Workforce quotas:

  • Primary sector: 10%
  • Secondary sector: 20%
  • Tertiary sector: 70%

The economist Colin Clark was an early theorist on economic development. He created a nice system dynamics diagram to illustrate how the size of each sector changed over time. He tracked 4 sectors in his diagram.

James Beringer in his book The Control Revolution (1986) proposes a 5 sector model of the economy based on the role each sector plays in controlling a significant dimension of the material economy.

As we might expect, an economy's major sectors, as delineated by Clark (1940), Hatt and Foote (1953), and Bell (1973), correspond to major stages in the essential life process. The primary sector - agriculture, fishing, lumber, mining, oil and gas - represents the extraction of matter from the environment to produce energy, including the calories to sustain individual organisms. The secondary sector - processing primary goods, as in construction and manufacturing - represents the synthesis of matter and energy into more organized forms (negentrophy). The tertiary sector, including transportation and utilities, represents the infrastructure for distributing matter and energy about the system, while the quaternary sector - trade, finance, insurance, and real estate - constitutes a parallel infrastructure for the collection, processing, and distribution of information that is necessary in all living systems for the control of material flows. Finally, the "highest" of all sectors in its remove from the physical environment is the quinary sector, including government, law, and education, representing the societal programming - socialization, education, law making - and collective or representative decision making to effect control. ~p. 179.

When thinking about how sectors evolve over time you should avoid thinking that growth in, say, the Secondary sector depends upon growth in the Primary Sector. Growth in the Secondary or Tertiary sectors can in fact drive growth in the Primary Sector. For example, where I come from the prices for blueberries per lb is so low that some growers are not harvesting this year. As an amateur winemaker I felt it was incumbent upon me to see if some greater value can be created by converting the blue berry juice to a cooler, a wine, or port style. Yesterday 40 gallons of blueberries were harvested and today there were crushed into pulp and juice to begin the maceration process. The juice is coming in at 8 to 9 Brix (percent sugar). I have 20 gallons of pulp and juice to work with. My role as a winemaker would be a job in the secondary sector of the economy (manufacturing) and if I was successful it might create more demand and higher prices in primary sector production. Just having an excellent product to sell locally would not be enough to move the needle on demand without also having a higher volume distribution network. Setting up a distribution network would involve working with people in the tertiary sector (transportation and utilities) and above to extend the distribution network.

So how many sectors are there? I don't think the question requires one answer. There are as many sectors as are required to adequately answer the types of questions you are asking. In alot of situations a 3 sector model might be useful (e.g., economic growth in the private sector) whereas trying to understand some finer details of how industrial economies evolve over time required 5 sectors in Beringer's model.

I'll end this blog with a tribute to primary sector workers in the Oil & Gas industry. I had an opportunity last friday to see the rock/blues/reggae band Big Sugar whose song accompanies this video showing some Well Testing work being done in Alberta, Canada.


Markets & Traffic [Economics
Posted on May 16, 2017 @ 11:44:00 AM by Paul Meagher

What is a market? What is traffic? How are markets and traffic related? Some quick thoughts on these concepts.

What is a market?

For a definition, I consulted the excellent book Reinventing the Bazaar: A Natural History of Markets (2003) by the Standford historian of economics John MacMillan.

He defines a market by first defining what a market transaction consists of: exchange that is voluntary: each party can veto it, and (subject to the rules of the marketplace) each freely agrees to the terms. A market is a forum for carrying out such exchanges. ~ p.6

Perhaps you were expecting more from a definition of what a market is and there is definitely more that MacMillan has to say about how they evolve and what causes them to function effectively or not. I hope to return to discussing ideas from this book in the future, but for now I want to pair this book with another book like you might pair a particular wine and cheese for synergistic effect.

What is traffic?

For a definition, I consulted another excellent book Traffic: Why We Drive the Way We Do (and What It Says About Us) (2008) by Tom Vanderbilt.

To define what traffic is, Tom feels it is first necessary to be clear about what a road is:

The road, more than simply a system of regulations and designs, is a place where many millions of us, with only loose parameters for how to behave, are thrown together daily in a kind of massive petri dish in which all kinds of uncharted, little-understood dynamics are at work. There is no other place where so many people from different walks of like - different ages, races, classes, religions, genders, political preferences, lifestyle choices, levels of psychological stability - mingle so freely ... for most of its long life the word traffic has had positive connotations. It originally referred (and still does) to trade and the movement of goods... the movement of goods and people were intertwined in a single enterprise; after all, if one was going somewhere, it was most likely in pursuit of commerce. This is still true today as most traffic problems occur during the times we are all going to work, but we seem less likely to think of traffic in terms of motion and mobility, as a great river of opportunity, than as something that makes our lives miserable. ~ pp. 6 - 7.

How are markets and traffic related?

The study of physical traffic can be rich source of metaphors for how markets evolve and function. Traffic is interesting to study in its own right because we are all subjected to it and perhaps for that reason it can offer a rich source for metaphorical comparisons to how markets work. Indeed, the definition of what a road is above seems to capture the idea of what a market is better than MacMillan's definition.

MacMillan's preferred way to think about markets is using the metaphor of primitive football and how it evolved from primitive football into the official sports of soccer, rugby, and football. Many of the same dynamics of how markets evolve over time are on exhibit in the evolution of primitive football into these three official sports. The rules and regulations loosely define these different sports much as the rules and regulation loosely define what a road is. By looking at the historical evolution of sports and roads, we can see how rules and regulations were crafted to evolve these sports and road into high traffic systems.

In addition to using traffic as a metaphor for thinking about markets, we might also view a market more literally as the situation where there is traffic to a product or service. While traffic may not be sufficient to define what a market is, it is probably a necessary condition for defining what is or is not a viable market.

These are just some preliminary thoughts to what markets are, what traffic is, and how they are related. I hope to revisit some of these themes in the future as I (slowly) make my way though these books. My aim is to have a richer understanding of these two fundamental concepts and their interrelations.


Uneconomic Growth [Economics
Posted on June 7, 2016 @ 07:31:00 AM by Paul Meagher

The ecological economist Herman E. Daly popularized the concept of uneconomic growth in a Scientific American article (2005, PDF) and more recently in a Great Transition article (2015).

In his Scientific American article he introduced the concept of uneconomic growth this way:

When the economy’s expansion encroaches too much on its surrounding ecosystem, we will begin to sacrifice natural capital (such as fish, minerals and fossil fuels) that is worth more than the man-made capital (such as roads, factories and appliances) added by the growth. We will then have what I call uneconomic growth, producing “bads” faster than goods—making us poorer, not richer.

In the last few days I've been dealing with uneconomic growth in my vineyard and I think anyone who practices horticultural pruning can appreciate the concept of uneconomic growth or growth that detracts from, rather than adds to, the value of a plant.

In the case of young grape vines, I was impressed that they grew at all for me and didn't do enough pruning to properly control their growth. This year as I do the my first round of major weeding around the vine, I am also using my thumb to selectively remove buds that will throw off shoots if allowed to survive. The removal of a bud now means I won't have to cut that cane off over the summer and the plant will not have wasted energy growing the cane. The cane will also not shade out other canes. I'm hoping this form of pruning will make the job of managing the vines easier this year and produce grapes with a higher sugar content. We'll see...

The alternative of letting all the buds grow after cane pruning is the practice I used to follow and even this year I'm probably allowing too many buds to survive because I have not tested this viticultural practice, but feel that I have observed the end result in one superbly managed vineyard.

So when I think of uneconomic growth I also think about the example of grape vines that require some pruning in order to create more value and less work. Proper growth is about managing the growth energy of the vine by nipping some forms of growth in the bud stage before they have a chance to waste resources and create future work. You have to be able to forsee the consequences of growth to know what buds need to be nipped early. Nipping them too late leads to the uneconomic growth of the plant, one that can produce unripe fruit and lots of unnecessary canopy managment work.

I think it is important to dispel the notion that all growth is good. Some can suck energy from other more valuable projects and result in extra work with little payback. I don't think we automatically become experts at making these judgement calls and that sometimes we only learn when we accept that jobs that suck too much energy and teaches you the lesson to be more selective.

When Daly used the term "uneconomic growth" we was talking about bigger societal issues that arise as we approach a "full world". I think the notion of uneconomic growth should also be related to personal experience to be fully assimilated and for me I find that personal reference in the vineyard and in my early days of working at startups.


The Circular Economy [Economics
Posted on October 20, 2015 @ 11:54:00 AM by Paul Meagher

I signed up for an online edX course on The Circular Economy.

There are a variety of reasons why this topic interests me:

  1. I think the opportunities for recycling livelihoods is much greater than is currently the case. I wrote a recent blog about Recycling Livelihoods.
  2. I'm interested in looking at economic activity using a more systems-based approach which the term "circular" suggests.
  3. As someone with an ongoing interest in Permaculture this seems like a topic that is well aligned with its teachings and can help deepen understanding of the 12 Permaculture Principles.
  4. How does the concept of a circular economy relate to concepts such as growth, GDP, steady state economy, entropy, sustainability, energy production/consumption, etc.? The course might provide a venue to think about these relationships in more detail.
  5. Can the concept of a circular economy be used to suggest some trends and innovations to look for in the current economy? Re-manufacturing and leasing home goods from manufacturers rather than owning them might be examples of such trends and innovations
  6. I haven't heard much about circular economics but it appears the Ellen McArthur Foundation has been sponsoring circular economics research for awhile now and this course is a chance for them to disseminate that research more widely. I'm sure I'll learn some new and interesting ideas from this research program.

So these are some reasons I'll be taking this course. Maybe I'll see you there. Course is free or $50 if you want a verified certificate.

If you want to learn more, Wikipedia has a useful page on the circular economy.

Here is a Formidable Vegetable song about Permaculture Design Principle # 6 which is to "Produce No Waste". The song provides a personal and entertaining perspective on the issue of waste.


Goal Of The Economy [Economics
Posted on July 7, 2015 @ 02:46:00 PM by Paul Meagher

I'm spending more time thinking about Herman Daly's article, Economics in a Full World, and decided to devote another blog to it (see previous blog). In this blog I want to explore one of his ideas in some more detail, namely, the idea that the economy should have a goal. I was inspired to write this blog when I read this "goal of the economy" passage:

The goal of the economy is to minimize the low-entropy used up to attain a sufficient standard of living—by sifting it slowly and carefully through efficient technologies aimed at important purposes. The economy should not be viewed as an idiot machine dedicated to maximizing waste. Its ultimate purpose is the maintenance and enjoyment of life for a long time (not forever) at a sufficient level of wealth for a good (not luxurious) life.

Later, Daly argues against the idea that the goal of the economy should be growth:

The empty world has rapidly turned into a "full" world thanks to growth, the number one goal of all countries—capitalist, communist, or in-between. Since the mid-twentieth century, the world population has more than tripled—from two billion to over seven billion. The populations of cattle, chickens, pigs, and soybean plants and corn stalks have as well. The non-living populations of cars, buildings, refrigerators, and cell phones have grown even more rapidly. All these populations, both living and non-living, are what physicists call "dissipative structures" — that is, their maintenance and reproduction require a metabolic flow, a throughput that begins with depletion of low-entropy resources from the ecosphere and ends with the return of polluting, high-entropy waste back to the ecosphere. This disrupts the ecosphere at both ends, an unavoidable cost necessary for the production, maintenance, and reproduction of the stock of both people and wealth. Until recently, standard economic theory ignored the concept of metabolic throughput, and, even now, its importance is greatly downplayed.

If growth is not to be the ultimate goal of the economy, then what is? To think about this question, Daly suggests we use an "ends-mean pyramid" that looks like this:

The pyramid works like this:

At the base of the pyramid are our ultimate means (low-entropy matter-energy)—that which we require to satisfy our wants, but which we cannot make, only use up. We use these ultimate means directly, guided by technology, to produce intermediate means (e.g., artifacts, commodities, services) that directly satisfy our needs. These intermediate means are allocated by political economy to serve our intermediate ends (e.g., health, comfort, education), ethically ranked by how strongly they contribute to the Ultimate End under existing circumstances. We can perceive the Ultimate End only vaguely, but in order to ethically rank our intermediate ends, we must compare them to some ultimate criterion. We cannot avoid philosophical and theological inquiry into the Ultimate End just because it is difficult. To prioritize requires that something go in first place.

So what is the Ultimate End of the economy? I would argue that resilience is a leading candidate. In Dennis Meadow's accompanying viewpoint article, Growing, Growing, Gone: Reaching the Limits, he argues for the importance of resilience this way:

In my own work, I have shifted from a preoccupation with sustainable development, which is somewhat of an oxymoron, toward the concept of resilience. I think that is the future: to understand how different scales—the household, the community, the school––can structure themselves in a way to become more resilient in the face of the shocks that are inevitable regardless what our goals might be.

You see the climate debate evolving this way. Talk about prevention is on the wane, giving way to talk of adaptation. Adaptation really means resilience. It is about designing actions for dealing with New York City the next time superstorms threaten to paralyze the city or for figuring out what California can do if the current drought continues for many more years, or even decades.

Aspirations and good fortune will get us only so far. Human survival cannot risk reliance on them alone

Resilience is one idea for the Summum Bonum of economics. Governments are actually very active in this area and it may be the private sector that will have to start catching up to meet their vision. The private sector does not always lead the way.

Permaculture has also been critical of growth culture and offers many practical ideas for increasing resilience at different scales. In this video, Permaculture co-founder David Holmgren discusses the future and the ways we might adapt our thinking and actions to accommodate it.


Full World Economics [Economics
Posted on July 3, 2015 @ 11:34:00 AM by Paul Meagher

I'm a fan of Herman Daly's economic writings. Herman Daly wrote an excellent textbook, Ecological Economics, and the book has helped define the field. Others who have been inspired by his writing contribute to The Daly News and it is a blog that I regularly monitor. Finally, Herman Daly is well known for his writing on the need for a steady-state economy instead of one that always tries to grow GDP year-over-year (is persistent GDP growth sustainable or does it eventually become uneconomic?).

In 2014 Dr. Daly received the Blue Planet Prize in Tokoyo. He took the opportunity to revisit his work on Full World Economics and you can find his recent article Economics for a Full World at the The Great Transition website. I believe Daly is revisiting this work because he regards it as one of his more important contributions to economic thought and because he had some refinements to add.

One refinement is the suggestion that there are different types of limits that economists could differentiate and indentify more precisely when discussing a particular "limit". What type of limit is it?

  1. A Futility Limit
  2. An Ecological Catastrophe Limit
  3. An Economic Limit

Another refinement is his identification of 10 policies for a steady state economy.

  1. Developing Cap-Auction-Trade systems for Basic Resources
  2. Tax Shifting
  3. Limiting Inequality
  4. Reforming the Banking Sector
  5. Managing Trade for the Public Good
  6. Expanding Leisure Time
  7. Stabilizing Population
  8. Reforming National Accounts
  9. Restoring Full Employment
  10. Advancing Just Global Governance

I encourage you to read his Economics in a Full World if you want to examine these limit and policy ideas in more detail along along with many other ideas that Dr. Daly has worked on under the rubric of "Full World Economics".

As we come into election season, perhaps some of Dr. Daly's policies and ideas will be discussed as options for managing our own governance.


Maximum Power Principle [Economics
Posted on December 26, 2014 @ 10:27:00 AM by Paul Meagher

Today I want to begin discussing the maximum power principle. Credit for the maximum power principle as I will be discussing it is due theoretical biologist Alfred Lotka and was more fully elaborated by systems thinker Howard T. Odum.

A bit of context first.

There is a maximum power theorem in electronics that I do not claim to be an expert on but which provided some inspiration to Mr. Odum. Mr. Odum also uses the Atwood Machine in some of his explanations of the maximum power principle, where an Atwood Machine is just a heavy weight placed on the down size of a rope with pully. You are then asked to imagine what happens when you put couterbalancing weights of different mass on the other side of the rope. Maximum power in the system is achieved when you select a counterweight that delivers the maximum amount of work in the shortest amount of time - a counterweight that is around 50 to 60% of the weight of the heavy weight on the other end. Power output is reduced when the weight is so light that considerable power is lost as heat when the heavy weight crashes down to earth. Power output is also reduced then the counterweight is so heavy that is moves very slowly up the other side of the Atwood Machine. Maximum power is achieved when the loading is optimal relative to the energy available to drive the system (the potential energy in the heavy weight on the other end of the pully).

Mr. Lotka and Mr. Odum originally proposed the Maxiumum Power Principle as a 4th law of thermodynamics, a law that would provide for a physical interpretation of why natural selection occurs. The physical principle that natural selection might be satisfying is to cycle power from the available energies in the system at a maximum rate.

The physicists have so far not jumped on the idea that there might be a fourth law of thermodynamics that might serve to explain much more about why the natural world is organized as it is.

The idea that we as individuals, as a business group, as a nation, or as a species are adapted to maximize power consumption in order to survive and compete has a certain amount of plausibility and explanatory power to it. It is worrying to some who see our maximum power tendancy as hard coded into our DNA making us unable, as a species, and as a market economy, to slow down our drive to exploit as much energetic power as we can in as short a time as we can. Humans are the supreme power maximizers and our effects have lead many to call the current era "The Anthopocence Era".

Discussions of the maximum power principle can quickly shift from physics to sociology which makes some physicists uncomfortable with the idea, but an increasing number of writers are starting to wrestle with the implications of the maximum power principle (see Kurt Cobb's Greed Explained article), how we should understand it, and perhaps counteract the tendency to exploit power at maximum rates. Some Buddhist teachings have recognized the tendency, that maximum power does not produce maximum happiness, and encourage disciples to live more contemplatively and less acquisitively.

The final observation I will make today about maximum power is whether there is a corresponding aesthetic which goes with it. The designed landscape, either around the home, the garden, the farm, and the park might be most preferred when the power output of that landscape appears to be maximized. In a forest garden, the idea is to plants trees at every level of the understory from the top canopy layer, to the small trees, to the shrubs, to the vines, to the tall plants and short plants. Productive ecosystems like this will sometimes occur in nature, but will probably not contain all the edible plants we might want to see in a forest garden understory. If one were to encounter such a garden, my guess is that most people would find it aesthetically pleasing. Is it because all the colors, textures, smells and edibles are pleasing at many levels, or is there an additional and significant principle of maximum power cycling that is also being appreciated?

Maximum power may not be so bad as we think if we understand it to mean the harnessing of available energies at a maxium power rate in a way that is more sustainable. To be more sustainable we must be more intelligent about how we harness the available energies to create landscapes that are less energy intensive. We are still maximizing power but the amount of power could be voluntarily set at a lower set point which would require us to re-organize our ways so as to live within a new energy envelope. Producing more of our own food and goods ourselves and locally, travelling less intensively, buying smarter, recycling more, wasting less energy, and sharing more are few ways to lower the energy envelope in a way that maximizes power in the context of lower overall energy usage. Strategies like this can lead to better individual and group-level resilience in the face of whatever the future might hold.


Natural Capital [Economics
Posted on December 17, 2014 @ 09:20:00 AM by Paul Meagher

In a previous blog called The Energese Language I stated my intention to begin exploring the work of ecological systems thinker Howard T. Odum. One of the aspects of his work that appeals to me is his facility with using diagrams to express ideas and create insight into systems. In today's blog I'll focus on a diagram he used to explain the idea of natural capital. The diagram below comes from his The Emergy of Natural Capital article. The diagram is worth studying for awhile.

What I hope this diagram makes clear is how the wealth generated in our economic system is completely dependent upon the natural capital supplied by the environment. I don't think I could make this point any clearer than this diagram does.

Herman Daly has written a recent article called The Use and Abuse of the "Natural Capital" Concept in which he discusses some misconceptions surrounding the Natural Capital concept. One common misconception is evidenced in Dieter Helm's report The State of Natural Capital: Restoring our Natural Assets:

As the White Paper rightly emphasized, the environment is part of the economy and needs to be properly integrated into it so that growth opportunities will not be missed.

Here is Daly's observation on what is wrong with this statement:

If the Chairman of the UK Natural Capital Committee gets it exactly backwards, then probably others do too. The environment, the finite ecosphere, is the Whole and the economic subsystem is a Part – a completely dependent part. It is the economy that needs to be properly integrated into the ecosphere so that its limits on the growth of the subsystem will not be missed. Given this fundamental misconception, it is not hard to understand how other errors follow, and how some economists, imagining that the ecosphere is part of the economy, get confused about valuation of natural capital.

The field of ecological economics exists because there is so little mainstream recognition in economics of the overriding importance of natural capital in providing any wealth that we enjoy. Howard Odum was a pioneer in this field of ecological economics and I think it is worth noting in his diagram the need for "Payments for Restoring Natural Capital" and the use of these payments to reinforce "Nature's Work Producing Resources". Are we making "Payments for Restoring Natural Capital"? How should these payments be determined and who should pay?

If you want to further explore the complex issue of pricing natural capital then I would encourage you to watch George Monbiot's provocative lecture on Natural Capital called "The Price of Everything".


Firm Size and Profitability [Economics
Posted on November 13, 2014 @ 01:10:00 PM by Paul Meagher

What is the relationship between the size of a firm and the amount of profit, on average, it generates? The question is fairly important because if smaller firms are more profitable than larger firms, it might tell you something about where you should invest your money.

In order to compare profitability of smaller firms to larger firms you need to come up with a ratio that allows you to compare them. A commonly used ratio is the Return on Assets which can be defined as:

ROA = Net Income/Total Assets

Where the Total Assets are comprised of both debt and equity financing. So if a company has total assets of 1 million and generates a net income of 100,000 then the ROA is a 10% return. If a larger company has total assets of 10 million and generates a net income of 1 million, then again the ROA is a 10% return. So the ROA ratio allows us to compare larger and smaller firms in terms of their relative profitability.

A 2012 bulletin by Statistic Canada called Are Small Firms More Profitable than Large Firms? reported the following result:

What this graph shows is that firms with between 5 and 20 employees had the highest return on assets and that the largest firms are quite a bit less profitable. Similar results can be found for US companies but you have to wade through more literature to find a graph that expresses the relationship this simply.

So why might the curves look like this? There are many possible reasons cited in the article Employees, firm size, and profitability in US manufacturing. Some of them include:

  • Some notion of optimal firm size
  • Dis-economies of scale may be more the rule than the exception in many industries
  • Organization overhead drains profit as as you get bigger
  • Loss of unique competencies/secrets as you get bigger and cannot contain them
  • More competition as you get bigger
  • Market saturation
  • Etc...

The Fortune 500 worldview would have us believe that we should be investing our money in the large companies of the world. They certainly generate huge amounts of revenue, and therefore media buzz, but we might ask how profitable they are from an ROA perspective (the organization drain on these companies due to high executive salaries can make them considerably less profitable). We might not hear as much buzz around the companies with between 5 and 20 employees because they don't generate amounts of revenue that generate media buzz, but if measured by ROA they might be more profitable than many of the large companies touted as "leaders" in the business world.

The purpose of this blog is simply to question the notion that larger firms are more profitable and point out some data that suggests otherwise. The data is not as simple or as clear in some cases as the data I report here so do you own research if you want a more nuanced understanding of this relationship. I've also not addressed issues of relative risk in investing in small and large firms and that always has to be taken into account when investing. The Statistic Canada report also has a chart showing the volatility of ROA as a function of firm size.

The author of the report summarizes the volatility data in this way:

These results provide evidence that, as small firms grow, their financial performance becomes more homogeneous—though this trend reverses itself for very large firms.


Economix reviewed [Economics
Posted on December 2, 2013 @ 07:25:00 AM by Paul Meagher

This is brief review of a book I finished reading by Micheal Goodwin and Dan E. Burr called Economix: How Our Economy Works (And Doesn't Work) in Words and Pictures, 2012, Abrams Books.

This book is unique in that it provides a history of economic thought from Adam Smith to the present using comic art through out to explain concepts. The layout is like a comic book but contains instructive content about economics in each frame. This format was pioneered by Larry Gonick who is acknowledged as a big influence for Micheal Goodwin, although Dan E. Burr is the illustrator.

The artwork is top notch and very amusing throughout. If you have read introductions to economics you will still want to read this book because of the unique angle that a comic book approach offers to conveying ideas. Because I have read some introductions to economics the book covered some familiar ground, however, when combined with interesting artwork it renders the familiar new again.

Here is a sample of some artwork taken from the book's website The artwork in the book is black-and-white but a newer Greek translation of the book will be in color. The page below discusses the Marshall Plan:

The book is divided roughly into two parts. Up until page 199, the book seems fairly apolitical. However, on page 199 Micheal Goodwin announces his intention to offer up a more critical account of modern US economic history and thinking. From pages 200 to 291 the book covers US economics from 1980 to the present. In this section of the book, Micheal is very critical of Reganomics, Greenspan, the Fed, Wallstreet bailouts, the increasing gap between rich and poor, the Worldbank, and the Bush policies. In this section you may be a bit offended depending upon your political orientation, but again the combination of content and artwork is so good that you will nevertheless want to read to the end to see how the economic villains are caricatured.

The book is one that you will likely want to re-read or at least scan through again after you have read it once just to appreciate the fantastic artwork. I give this book two hearty thumbs up and if you are looking for a good book to give to someone for xmas who is interested in politics and economics, then you can't go wrong with this book.


The ecomomics of selling local meat in restaurants [Economics
Posted on January 11, 2013 @ 09:45:00 AM by Paul Meagher

If you were raising livestock such as cattle, pigs, or poultry, you might think that you hit the motherload if a busy local restaurant, or better yet, a restaurant chain, offered to buy your livestock meat to serve to their customers. Isn't this the dream of the local food movement? Local farmer does good selling his meat to local restaurant.

Farming entrepreneur Joel Salatin raises cattle, pigs, and poultry and tells us why local farmers find it difficult to supply meat at a profit to successful restaurants and fast food outlets. The problem boils down to the fact that these outlets don't want meat from the whole animal, they just want selected cuts of meat. If the farmer can't sell the whole animal then it is very difficult to sell their beef, pork, lamb, or chicken at a profit.

Chipolte Mexican Grill only uses about 18 percent of the carcass, so any supplier needs to find a home for the rest of the critter.The bottom line is that the lack of variety in the fast food simple-menu model creates an inherent inaccessibility to small-scale local producers who need to move the whole animal. The only way a narrow-spectrum fast food place can exist is to be able to cherry-pick from a big enough inventory pool.

In this regard, the specialization, simplification, and routinization of the fast food model discourages access by non-industrial local farms. While we smaller local farms may produce a significant volume of product, we don't normally do enough of any piece of an item to supply such a narrow protocol in such volume. In this respect, the fast food industry has been a driving force in changing the landscape of the food system.

If you are wondering why local livestock producers don't sell to your local fast food outlet or restaurant, their narrow-spectrum use is one of the reasons. Joel has made some inroads into selling his local meat to Chipolte Mexican Grill, but in involves a) working with an owner who is committed to local sourcing, and b) finding markets for a significant portion of the carcass that they don't want on their menus - the "we only serve white meat here" problem.

In conclusion, the fast food model makes it difficult for local consumers to patronize local food producers. The fast food model is also not particularly sustainable so if you want to support local and sustainable food production, you might want to think twice about pulling up to that drive through. To get local meat into your local eating establishments is going to require a) innovation in local food systems, and b) consumers who are willing to have some dark meat with their white meat in order to make it economic for a local poultry producer to sell their chicken in a local eating establishment.




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