Peter Victor: What’s the Difference Between Growth and Prosperity? 

Thermoeconomists know that Earth is a thermodynamically open system. That is not the point. The argument that they are making is that when we burn fossil fuels, a large part of that energy is wasted in the process. Some of the energy is turned into heat that cannot be used to do useful work, and some of it is transformed into gas that enters the atmosphere and is harmful to the planet. Nobody claims that the entropy of the planet is becoming maximized like it would in a closed thermodynamic system. The idea is to challenge the Lockean notion that it is human labour that creates value and without it nothing in nature has any worth. The laws of thermodynamics tell us that everything in nature has valuable energy embedded in it, and when we take resources from nature to create goods, valuable energy that could be harvested is wasted in the process. Whenever we create utilitarian value, there is a cost in terms of energy that has been lost due to inefficiencies. That is why there is currently much talk about the aggregate efficiency of useful work in economic systems.

sonny gig Economists have known for long that clean air is a limited supply renewable resource, that fossil fuels are non-renewable and that solar energy is limitless for any relevant time scale. So why bring up entropy? What does it add to the economic debate except white noise?

halneufmille You’re absolutely right that it has been known for a very long time that these resources are limited. The idea that we should bring in entropy into economic analysis is complicated and there is still much debate around it, but I can at least partially answer your question. First we have to look at the history of modern economic thought. Economic modelling has since its inception been heavily influenced by physics, especially Newtonian mechanics. Adam Smith was inspired by Newton’s Third Law of Motion, which states that there is an equal and opposite reaction to a force applied to an object, to provide an account for how the dynamics of supply and demand work i.e. If there is demand then supply has to increase to meet that demand and the market clears and so on. French economist Jean-Baptiste Say used Newton’s First Law of Motion which essentially says that a moving object will keep moving forever unless there is an outside force that affects its path. He used this idea to justify why a free, unregulated market was good since demand would generate supply which would then create more demand and therefore any outside “forces” would be detrimental to the marketplace. These ideas of how the free market works were developed before scientists had any real understanding of the laws of energy i.e. thermodynamics. The idea of entropy challenges the idea that market "forces" (which is also a word borrowed from physics) alone can create equilibrium in the economy, but there is still much work to be done to examine what entropy actually means in economics and how to measure it. One idea of entropy could be the degree to which the level of uncertainty increases in an economy when more agents enter it and add their inputs to the markets. For instance, the idea that outcomes are path independent and can be calculated using a representative agent is an area where a measure of entropy could perhaps mathematically show why this assumption is fundamentally incorrect. Unfortunately I can’t give you a much better answer at this point in time, but rest assured that some very smart econophysicists and economists are working on these problems as we speak.

He was borrowing thermodynamic laws as a metaphor to emphasize a point of energy flowing from a high state to a low state. Energy from the sun raises energy high again only in the geologic time frame (oil and gas formation). Rather we live in the short time. The comment made here is based on taking the conceptual metaphor way too literally. Its unnecessary distraction.