August 2016

Intro to 21st century economics

Go beyond the money

The usual discussion of economics would have you believe it is the study of money. While money is surely essential to any economic conversation, it’s just an abstraction on top of the true interest of economics:

Energy scarcity.

Economics is the study of how scarce resources are allocated to keep us alive. The most scarce resource we know of is energy.

It begins out there

The universe is trying to kill you.

It’s just not trying all that hard.

A basic truth of physics is that any concentration of energy will, eventually, diffuse away. Your mug of hot cocoa will lose steam, the sun will burn itself out, and the universe will one day go cold.

You needn’t worry about the sun or the heat death of the universe. We’ll be long dead before those problems arrive. But the hot cocoa is a lot closer to home. It’s an object lesson. Just like the cocoa, one day soon you, too, will go cold.

The only question is when. You can push that date off further and further by adding and preserving energy within the biological system you call your body.

Spend too long in the cold, the energy in your body leaches out and you’re dead. Go too long without food, your body spends all its stored energy and you’re dead. Leave a disease unmanaged, your body expends all its energy managing a broken system and, eventually, you’re dead.

You get the point.

I don’t mean to be morbid. I only point this out to underscore the importance of economics — that is, our study and management of scarce energy. While economics is steeped in obscure terminology and inaccessible, complex theory, it’s just about as important as your own heartbeat.

Basics of energy economics

We live on a planet positioned around 93 million miles from a ball of hot plasma we call Sol. The sun accounts for 99.86% of the mass in our solar system. Most of that is hydrogen, which the sun converts into energy by a process called fusion.

Sol outputs so much energy, you and I don’t have a meaningful frame of reference for it. After all, this energy is enough to warm up a ball of water and dirt 93 million miles away.

For as long as humans have been alive, and much longer than that, this basic setup has powered economics on planet earth.

It works like this:

  1. Unimaginable quantities of energy leave Sol
  2. Plants on earth absorb part of that energy in the form of light. Light energy sustains the plants and allows them to grow
  3. Animals come along and eat the plants. Chemical energy sustains the animals and allows them to grow
  4. We eat the plants and animals

Simple, right? Plants and animals are self-sustaining energy storage devices. Ecosystems are biological power plants, fueled by the sun.

Unique among other life on earth, humans are able to make plans and share them with others. Humans have been harvesting energy from ecosystems for over a hundred thousand years. Most of this time was spent in a process of hunting and foraging inside of existing systems.

Bands of humans would roam the Earth’s fertile countrysides in search of tasty ecosystems, moving from place to place as circumstances and scarcity demanded.

But ten thousand years ago, something changed.

Imposing order

Over time, humans discovered that they could build their own simple ecosystems. This event is often called the agricultural revolution. It fundamentally changed human society — and thus, economics.

Under agriculture, land was seeded with valuable plants and animals. This stock was carefully tended by humans. Instead of roaming, humans found the land that was most productive for farming and stayed there year after year.

This led to the first permanent settlements — villages, towns and cities.

Through farming, predictable energy could be harnessed from the sun, leading to the growth of populations who build agricultural settlements. Farming also allowed for free time to enjoy leisure and perform experiments. It necessitated tools for working the fields and tracking inventories.

Newly abundant energy opened the doors to technological and cultural advancement. Math and writing emerged as critical early systems for managing the agricultural revolution, forming the foundation of everything we think of as civilization even thousands of years later.

Resulting chaos

While human-accesible energy in the agricultural age was much more abundant than in the past, scarcity still reigned. For one thing, the earth’s surface is 75% water. Of the 25% that’s land, only a fraction is actually usable for agriculture. Factors like elevation, access to water, soil fertility, and overall climate make a huge difference in the agricultural value of any given scrap of land.

While conflict afflicts all animals, agriculture pushed humanity to perfect war and politics.

Farming laid the foundation for accomplishing all other work, from mining to pottery to painting. Without a strong agricultural base to feed your population, nothing else was possible.

While always dressed in various flavors of principle and ideology, war has always been about settling beefs with force. Those beefs are invariably rooted in who gets access to what scarce resource, and under what terms. Ideology was, and remains, a useful means of a creating an other, whose destruction and resource plunder was justified by strangeness of values and culture.

Because agriculture was so essential to power, it also became the first center of labor injustices. The prosperity of farming was not always shared fairly with those who tended the fields. Indeed, in the United States alone, trillions of dollars in value was created through the forced labor of African slaves. These individuals had no individual liberty. These humans were held as property because they had no political power and their service to agriculture had the potential to create extraordinary wealth.

Colonialism was also rooted in agricultural exploitation. Colonies were founded on land that was especially fertile, with no consideration paid to indigenous peoples whose use of that land went back generations.

Even gendered oppression, still rife in the 21st century, has an agricultural basis. Humans were labor power, and women were the source of all humans. Thus, controlling women’s lives through laws, culture and social taboos was essential to controlling the production of agricultural labor power.

Next episode

Tending to our energy needs has completely shaped human culture.

And that was even before the steam engine. With that invention, humanity discovered an extraordinary new direction of converting energy into work. To serve this innovation, we started pulling more and more fossil fuels out of the ground.

With the coupling of an old energy source to a new tool to harness it, technological innovation exploded. We call this the industrial revolution.

But was this really a new fuel source? Whether coal, petroleum or natural gas, fossil fuels are the result of ancient plant and animal life. They’re the sun again, stored and concentrated beneath the earth’s surface.

Just like agriculture, fossil fuels are rooted in scarcity. They’re not evenly distributed. They’re not always easy to discover or extract. And unlike plants, once we use up fossil fuels, they’re gone. One day, we’ll run out.

Still, the energy multiplier of engines and fuels sent humanity hurtling to all new frontiers. While humans can’t directly consume fossil fuels, they’ve nonetheless completely altered agriculture. Machines have automated much of the hard labor necessary to farming. In 1900, 41% of US labor was dedicated to farms. By 2000, that had dropped to just 2%.

US labor, freed from the yoke of the farm, expanded into myriad other industries, from manufacturing finished goods to entertainment to finance. Still, this labor surplus hasn’t been without its downsides. Black communities, disenfranchised by hundreds of years of economic theft, find their young men disproportionately incarcerated. As the need for labor shrinks, populations turn to more and more desperate means of survival.

Money == survival credits

Money is an abstraction on top of the chain of energy conversion between the sun and you. Because that chain is filled with inefficiencies, risk and adverse politics, there’s not always enough money — enough survival — to go around.

Which makes survival a struggle. We use money to access the basics necessary to maintain our own energy supply. Food, shelter and clothing are all essential to keeping our systems running. They all cost money.

It gets complex, too, because there are so many systems layered between ourselves and our means of survival in the 21st century. For example: it’s not just that clothes keep energy from leaching out of our bodies. They also signal to others whether or not we should be allowed to participate in the systems of survival themselves.

Thus, it’s a lot easier to get more money if you already have some. If you don’t, breaking the cycle of resource scarcity is a lot more challenging. It’s expensive to be poor.

An energy efficiency revolution

100 years after the agricultural revolution, humanity sped up even more.

In the 1970’s, the microprocessor changed everything about how work could be done. Packed with systems of logic, computer chips made information processing a completely automatic affair. Chips could sort data, communicate between systems, and even direct the efforts of robotic manufacturing.

Chips allowed energy to be converted into work in a way we’d never seen before. Look what happened.

via EPI

With this incredible automation of labor, it became possible for a small number of people to keep and hold a vast chunk of economic output. While later policies further contributed to wage stagnation, it is the microprocessor that’s the longest lever in creating 21st century wealth inequality. With more and more industrial processes reducible to something that can be handled by a computer — that is, an object whose entire output can owned — the need to share in wealth creation with other humans continues to shrink.

Indeed, the most reliably lucrative career direction in the 2010’s has been the work of directing microprocessors to do the bidding of humans. Scarce access to the skills necessary for computer programming has limited the pool of people able to participate in that industry. With scarce labor on one side and enormous riches on the other, many software developers enjoy a uniquely powerful negotiating position that leads to generous pay and often favorable working conditions.

For now.

Surviving until the greatest revolution

Exiting energy poverty will be the greatest revolution humanity has ever seen. As more of the sun is harnessed, as new physics is pioneered, we will find energy abundant enough to meet the survival needs of more and more people.

With energy abundance will come, far down the road, the opportunity for a shared prosperity, safety and global peace like we have never known.

Until that door is opened, though, we still have to get by. In a life of energy scarcity, the most important strategy is continually building processes for yourself that multiply finite resources to keep you alive.

While making money through selling labor as a software developer is often provided as an ideal means of economic mobility, that strategy doesn’t go far enough. The most powerful survival tool today is owning a business that’s run with microprocessors.

Successful digital businesses efficiently convert ideas into software that solves problems. In exchange for solving people’s problems, people exchange some of their survival credits. If you can give customers a better use of their finite energy by freeing up some of their time and effort, they’ll gladly cut you in on some of the resulting survival surplus.

That’s not a bad deal. It’s a deal that lets you build wealth as you sleep.

So if you want to get by in the 21st century, don’t stop at being a software engineer. Be a digital business engineer. Build a system that blends software and understanding people’s needs into a machine that helps you and your customers win. That’s the play. That’s how you build the most bulletproof protection against an uncertain future.

That’s what I’d do, anyway.


Learn more:

Sapiens: A Brief History of Humankind
This book is a cheat guide for the basic workings of our civilization.www.amazon.com

Labor and Monopoly Capital: The Degradation of Work in the Twentieth Century
Everything that ever bothered you about the workplace, explained.www.amazon.com

The Role Cotton Played in the 1800s Economy
By the 1860’s, the value of the slaves was “roughly three times greater than the total amount invested in banks.” www.pbs.org


Credits:

Iconography courtesy The Noun Project.

Polymer by Chameleon Design

Leaf by Yi Chen

Man by Lisa Staudinger

Bison by Jeff Cont

Microbes by Sergey Demushkin