Economics has an unknown enemy in the Second Law of Thermodynamics, which says that entropy (disorder) cannot decrease in a physical process. If the net disorder is increasing, then how can there be net growth in wealth? Net growth in wealth is possible only with a net increase in order. Conversely, if net order in nature is not increasing, then net growth in wealth is impossible. There can still be economic growth for some time if we keep taking nature’s wealth and converting it into a human property. But if we run out of natural resources, by the continuous destruction of nature’s wealth due to entropy increases, then the economy must also undergo rapid decline. This post discusses the relationships between entropy and economics and shows why sustainable economic growth is possible only by redefining the term “economic growth” as improving the quality rather than increasing the quantity of production and consumption.
Table of Contents
- Entropy and Economy Relationship
- The Science of Constant Entropy
- The Causes of Entropy Increase
- Growing Economy in Constant Entropy
Entropy and Economy Relationship
Entropic Order and Economic Price
The second law of thermodynamics says: Even when we produce some order in one place, we are returning greater disorder somewhere else, such that net disorder constantly grows. As disorder grows, energy becomes less useful (i.e., energy cannot be converted to work).
We can restate this idea in economic terms: Over time, useful energy becomes scarce. Demand and supply models of determining prices dictate that what is scarce must be priced higher. So, as useful energy becomes scarce, its price must rise, compensating for the decline in useful energy.
Why GDP Growth is Decline in Wealth
As a general rule, nature’s wealth is excluded from economic calculations. As nature’s resources are converted into human consumable products, they are included in the GDP. Therefore, GDP is the conversion of nature’s wealth into human production and consumption. Entropy growth implies that nature’s wealth declines faster than human production and consumption because the process of production and consumption destroys more order in nature than what we are able to consume. However, since nature’s wealth is excluded from GDP, therefore, we don’t see nature’s losses in the economic balance sheet; we just see the increase in the GDP.
Even as we have excluded the losses in natural wealth from GDP calculations, the economy depends on them. If natural resources become scarce, then GDP will rise due to price inflation, even as net wealth is declining. Therefore, GDP is not correlated to wealth because (a) GDP can be low even as natural wealth is high, and (b) GDP can be high even as natural wealth is low.
Due to the effects of entropy, natural resources become scarce and thus more expensive. When essential commodities become too expensive, then people don’t pay for them; they steal them. Theft increases a producer’s losses and decreases their production. The decline in production further raises the prices, which accelerates the theft. Thus, GDP goes up and down due to changing demand and supply, inflation and deflation, while net wealth is constantly declining. When net wealth declines drastically, GDP shoots up rapidly before plummeting into a crash.
Economics seems very confusing because we focus on GDP increase rather than wealth decline. The second law of thermodynamics makes this very evident: Even if GDP is increasing, wealth is constantly declining. Then, when GDP is decreasing, wealth decline may be slower.
Economics Discounts the Effects of Entropy
To put this in a concrete example, let’s consider oil, which is still under the ground. We take out the oil, burn it in cars, and the economy grows. But the cost of this burning—according to the Second Law of Thermodynamics—is that net disorder increases; we can call that pollution. Undoing that pollution has a greater cost than the benefit of burning oil. If we consider the ecosystem, then the net order is decreasing which means that there is a net decrease in wealth. However, if we focus only on the benefits from burning oil, then we can see the increase in the GDP despite a decline in wealth because the benefits are known but costs are hidden.
Over time, as oil becomes scarce, its prices will rise faster than a decline in oil production, if there are no alternative energy sources. That is not economic growth, but inflation in prices. When oil prices rise, then the price of every commodity rises, which makes employers increase people’s salaries. That devalues a currency and it makes the oil producer further increase their prices, which further increases the costs of all commodities, leading to an increase in salaries. In purely monetary terms, the GDP is growing rapidly, while consumption is constant or declining.
Of course, in practice, this will not happen because people will shift to alternative energy sources. But whatever you shift to, also involves the Second Law of Thermodynamics. That alternative energy also becomes scarce over time, and the prices rise faster than scarcity. The informed economists will discount the effects of inflation, and speak only about net growth in the GDP. But all ‘net growth’ calculations discount the losses due to entropy increase because the economist is not equipped to measure all the disorder being created due to consumption.
Entropy Ultimately Destroys Humanity
Things reach a point where we run out of resources. Then, the economy deflates, prices crash, and people die due to scarcity of resources. Their death slows the rate of decline of humanity in the short run, but because entropy is increasing constantly, eventually all life is extinguished.
If people like Elon Musk are to be believed, then humanity on earth has already reached that tipping point where its extinction is inevitable, and to preserve human civilization, some people should move to Mars. Of course, only a few people—who can afford interplanetary space travel—can move to Mars. The rest will be left behind to die. The humanity that moves to Mars will create a new civilization, restart the economy and grow until it runs out of resources on Mars. But since there are so many planets, we can keep moving from one planet to another, each time leaving behind most people to die, while a few people repopulate a new planet.
At this juncture, you might say: But what is the alternative? The second law states that entropy never decreases. So, we eventually run out of resources, and humanity must be destroyed. We can choose to live poorly for a long time on a planet, or we can choose to live prosperously for a short while on each planet. The increasing entropy forces us to be cosmic nomads. We have lived poorly for centuries in the past, but now we don’t want to do that. To live prosperously, we must leave planet Earth behind, and keep moving from planet to planet every few centuries.
The Science of Constant Entropy
The Cycling of Order in Nature
The answer to this question is that entropy increase is not a universal law, because there is no universal definition of order. What is food for one life-form is waste for another life-form, and vice versa. If an ecosystem is organized in a cycle in which waste produced by one life-form is food for another life-form, and the waste they produce is food for another life-form, then disorder will not grow perpetually—provided we can preserve the ecosystem cycle, and limit our consumption to precisely that rate at which the waste is being retransformed into food.
The easiest example of this cycle is O2 and CO2. Humans consume O2 and produce CO2. Then plants consume CO2 and produce O2. Similarly, humans consume food and produce waste that is the natural food for the plants, and plants produce grains and fruits, which are naturally waste for them but food for humans. There is no universal definition of order and disorder because there is no universal definition of food and waste. An ecosystem cycle can solve the problem of entropy if we follow two conditions: (a) don’t consume faster than plants can regenerate, (b) don’t destroy the plant ecosystem that will prevent the regeneration of the waste back to food.
Informational View of Entropy
Most people are not going to be convinced by the above argument. They will say: We have proven the increase in entropy in laboratory experiments, and we know that it is a law of nature. Therefore, it is important to go deeper into the understanding of disorder and order.
We can describe order in nature as information. We can then describe information as a sequence of 1’s and 0’s. Boltzmann described order in nature as being produced by the opening and closing of a door, which is equivalent to a sequence of 1’s and 0’s, equivalent to information.
Entropy increase means that information is constantly destroyed, or that the 1’s and 0’s are being scrambled. For example, the sequence 1100 can be scrambled into 1010. In binary notation, this corresponds to two numbers—12 and 10. If 12 and 10 are food and waste respectively for species A, while 10 and 12 are food and waste respectively for species B, then you can make two seemingly contradictory assertions: (a) from the perspective of each species, information is being scrambled leading to a decline in information, and (b) information is being regenerated by the other species, although it is still information scrambling from their perspective.
Since both A and B are scrambling information, hence, both are creating entropy. But because they are scrambling information in opposite ways, hence, entropy is constant. To keep this entropy constant, we must ensure that A doesn’t scramble things in a way that B cannot reverse. In simple words, if A is humans and B is plants, then humans must not produce a type of waste that the plants cannot regenerate back to food which the humans need for survival. If that caveat is followed, then entropy will remain constant in a system as a whole, although entropy will seem to increase from the perspective of each species in the system as food is converted to waste.
The Linguistic View of Entropy
The problem with thermodynamics is that there is no universal definition of order. If you write some text in English, which is represented in binary notation, which I interpret as a binary notation for Hindi, then the result will be gibberish. A sequence of 1’s and 0’s can be meaningful for English but meaningless for Hindi. So, what you call order can be disorder to me, and vice versa. Order always requires the definition of some interpretive language. Based on how a sequence is interpreted, the same objective information can become meaningful or meaningless. Thus, information is objective, but order is subjective. Information is universal, but order is relative. Therefore, 1100 can mean ‘food’ in one language and it can mean ‘waste’ in another.
To distinguish between objective information and subjective order, we need multiple layers of reality. For example, if the base reality is 1’s and 0’s, then the next level reality has to be dictionary words in Hindi and English. Then, the next level reality has to be the different grammars of Hindi and English. Then the next level of reality would be contextual nuances of what is meaningful in different situations. Finally, there will be another level of reality about what is meaningful specifically to an individual but may be meaningless to other individuals.
Effects of Hierarchy on Entropy
Let’s call these levels of realities a hierarchy, which progressively transform bits like 1’s and 0’s into words, then into grammatically valid sentences, then into contextually meaningful sentences, and then into personally meaningful sentences. When we reach the top of this hierarchy, then each living entity can accept something meaningless to another entity as meaningful.
However, if we remove this hierarchy, and stick only with 1’s and 0’s then there is no objective definition of order. Since every system is transforming one bit-sequence into another, we can call that transformation scrambling of bits—because we cannot interpret it as a meaningful activity. Then, we can say that since bits are always scrambled, therefore, entropy always grows. However, if we acknowledge this hierarchy, then bit transformation is not always scrambling; it can also be meaningful, such that what is meaningless for me can be meaningful for you.
Therefore, thermodynamic entropy increase is the natural outcome of stating that there is only one level of reality, which means there are bits like 1’s and 0’s which have no interpretation, the bit sequence cannot be given meaning, and all bit sequence changes are bit scrambling.
The Causes of Entropy Increase
Disorder is Caused by Our Choices
This false idea of entropy becomes a truism if we (a) scramble bits such that the receiver cannot decode them, (b) scramble the bits faster than the receiver can convert it back to what we consider useful, or (c) scramble the bits in a way that crashes the receiver. In all such cases, entropy will factually grow because the entropy is not being reduced by the ecosystem.
These three cases correspond to (a) producing waste that cannot be recycled back by nature into food for humanity, (b) consumption at a rate faster than what nature is equipped to recycle, and (c) producing toxins by human productivity that destroys other species in nature.
We can falsely rationalize the resulting disorder as being caused by a natural law that destroys life on a planet, creates temporary economic growth by destruction, forcing us to leave a planet over time. But these rationalizations are the outcome of a false idea that entropy always grows, and actions that don’t respect the fact that nature is organized to keep the entropy constant.
The Law of Entropy Increase is False
The idea that entropy always increases hinges on the false idea that reality exists at a single level, and is of a single type. For instance, there are only bits like 1’s and 0’s, but no meaningful words, grammar that structures these words, contextual interpretations, or personal preferences. Materialists like to claim that whatever we call words, grammar, contexts, or personality is nothing but 1’s and 0’s. That idea rationalizes reckless enjoyment, immorality, and rapid destruction of the ecosystem. Thereby, the false idea of entropy increase becomes a truism.
So, the fact that we see entropy increase is the outcome of stating a law that entropy will increase, which is the outcome of asserting that there is only one type of reality. If we recognize the existence of higher levels of reality, then we falsify the second law of thermodynamics, eliminate the three causes of entropy increase, and end the destruction of the ecosystem.
The Cycles of Regeneration in Nature
All ecosystems are structured as cycles that transform food into waste and back to food. There is a water cycle, air cycle, and food cycle. These cycles in turn depend on the cycling of day and night, the cyclical passing of seasons, which in turn depend on planetary motions. We cannot disconnect all these cycles, nor can we change one cycle independently of the other cycles.
To change the water cycle, air cycle, and food cycle on earth, we have to have the power to change planetary motions, which will then change day and night, seasons, and years. What happens to the ecosystems and all the life forms, is anyone’s guess if such change occurs. However, because we have no power to make such changes, therefore, we should accept that the ecosystem cycle of water, air, and food is also fixed by a cosmic arrangement.
Each such cycle has a fixed rate and the combination of all these cycles fixes the rate at which food is converted to waste and converted back to food. These cycles have created vast amounts of natural resources like mountains, seas, rivers, fertile land, deserts, minerals, and underground resources like oil. There is a natural rate at which these are regenerated. If we consume faster than that rate or produce toxins that destroy the ecosystem or produce things that cannot be recycled in the ecosystem, then we are tampering with the natural cycle of regeneration, without the power to change the ultimate determinants of that cycle—the movement of the planets.
False Notions Behind Economics
Modern economics disregards these cycles. It assumes that we have limitless power to consume these resources, which have been created over millions of years through natural cycles. Economics peddles the false idea of limitless economic growth and prosperity when the fact is that we are naturally constrained by the regeneration of natural resources. We can work harder, and we can print money, but we cannot recreate natural resources. When we run out of natural resources, the economy is sure to decline. However, if there is a huge supply of natural resources accumulated over millions of years, then we can enjoy a short-term bubble of exploitation of natural resources, although the consequences will be borne by future generations.
Therefore, there are natural limits to sustainable economics determined by the rate of natural cycles, governed ultimately by the planetary movements. If our ancestors have preserved nature for a long time, then we can rob those resources depriving future generations of a decent life. That immoral and selfish idea underlies capitalism, which envisions limitless growth not recognizing that our effort and printing of money is not going to bring back forests, rivers, mountains, fertile land, or clean air. To think that limitless growth is possible is stupidity. Of course, conditioned by greed, selfishness, and ignorance of the natural limits, people do become stupid. Competition between countries exacerbates this problem because each country wants to reach the status of a “developed nation” by perpetuating the exploitation of nature. Since one man is living the good life by robbing the savings of their ancestors, every man thinks that he must do the same. Why be left behind in terms of a good life, even if it is short-lived?
This doesn’t mean that everyone must live in poverty. It means that we cannot consume faster than nature can regenerate. Since the rate of regeneration is fixed by the planetary movement, therefore, there are natural limits to consumption, production, and economic growth.
Growing Economy in Constant Entropy
Replacing Economic Growth by Happiness
The simplest prescription is: Take what you need but minimize your wants. Of course, people are not going to listen to that because everyone is unhappy. They distract themselves from that unhappiness by consuming. If consumption drops, then distraction disappears and unhappiness reappears. That increased unhappiness is not caused by a reduction in consumption. It is ever-present in each person; consumption distracts us from that unhappiness temporarily. Therefore, before we can reduce consumption, we have to find alternative forms of happiness.
That happiness hinges upon the hierarchy we talked about earlier. Our bodies are not the only sources of happiness in this life. There is also the happiness of the mind which comes from creative pursuits. There is the happiness of the intellect that comes from the knowledge of the truth. There is emotional happiness from loving relationships. There is moral happiness that arises from the performance of duties. And there is transcendental happiness that arises from self-realization. As we rise higher in this hierarchy, happiness increases dramatically.
For instance, the happiness of creative pursuits is far greater than that of sense pleasures. The happiness gained by acquiring knowledge is far greater than that from creative pursuits. The happiness gained from a loving family is far greater than that from theoretical knowledge. The happiness of sacrifice in duty is far greater than the happiness of a loving family. And finally, the happiness of transcendence is immensely greater than all of the above types of happiness. Happiness is a quality, that gets more refined, intense, and satisfying as we ascend the hierarchy.
True Economic Growth is Qualitative
Economic growth is touted at present as the route to happiness. However, the equivalence between economic growth and happiness is mistaken when we focus on increasing the quantity of production and consumption. Instead of trying to increase the quantity of consumption, we have to improve the quality of consumption. That improving quality will increase our happiness, which will naturally reduce the quantity of consumption. False ideas of endless quantitative economic growth will now be replaced by true ideas of endless qualitative betterment of life.
For example, food grown in natural sunlight, air, and soil is better quality food than the food created by industrialization. Clothes that increase our love for the other person is better quality clothing than the one that increases our lust. Housing that keeps the mind calm, and improves immunity, is better quality housing than congested, closed, or noisy housing. Books that enrich our minds with the knowledge of the truth are better quality books than fictional entertainment. A life that focuses on the performance of duties, rather than competing for resources, is a better-quality life. Similarly, a life that elevates each person toward transcendence is purposeful while a life that pushes a person toward endless production and consumption is meaningless.
Qualitative Growth is Limitless
There are natural limits to quantitative economic growth, but there are no limits to qualitative betterment of life based on deeper levels of our existence. The cycles of nature limit how much we can prosper materially, but the cycles of nature do not constrain our happiness. Again, this doesn’t mean that we starve, live homeless, or naked. It means that we take the food, clothing, and housing we need but do not use these as distractions to overcome inner unhappiness.
Therefore, if we define economic growth as the quantity of production and consumption, then we will always find limits to that growth. However, if we define economic growth as the quality of production and consumption, then we will find that there are no limits to that growth.
Qualitative Growth is Sustainable
Increased quality of life is also economic growth because higher-quality commands higher prices. A good example is that organic food costs more than food produced by fertilizers. Natural silk and cotton clothes are more expensive than synthetic cloth. Houses made out of mud bricks, lime, and stone are more expensive than houses made out of concrete bricks. Therefore, eating organic food, wearing natural silk and cotton clothes, and living in naturally produced houses are more expensive, which means that such production and consumption is economic growth.
And yet, people are not buying this qualitatively better food, clothing, and housing. They are instead consuming cheaply produced, lower quality, synthetic products. There is no supply because there is no demand, and vice versa. The consumption of lower quality, therefore, is a decline in the economy, and an increase in quality also means an increase in the economy.
The Law of Diminishing Returns limits this qualitative growth in an economy because the producers cannot increase quality limitlessly as the consumers are unable to pay for higher-quality products, because they are in turn not producing higher-quality products. Declining quality of production and consumption is a vicious self-reinforcing cycle in which you cannot produce higher-quality products because the consumers cannot pay for them. Then you replace high-quality with low-quality, and high prices with low prices. Then you formulate a Law of Diminishing Returns in which improving the quality doesn’t translate into economic value because most people cannot afford to pay for higher-quality products because they are themselves engaged in lower-quality production endeavors. The above law thereby creates the necessity of mediocrity in which high-quality, high-value, high-price, and low-quantity lifestyles must be replaced by low-quality, low-value, low-price, and high-quantity lifestyles.
People falsely claim that declining quantity of consumption will crash the economy, ignoring the fact that you can replace the quantity with quality, preserve the economy, and everyone can live prosperously without decreasing the economy. By reducing the quantity, the economy becomes sustainable. But by increasing the quality of consumption, the economy constantly grows.
Therefore, there is no contradiction between economic growth and economic sustainability. This contradiction is created by replacing quality with quantity. If we reverse that, then the economy can constantly grow, that growth will not be reversed, and hence it will also be sustainable.