1917. limits to closed system thinking.

Provocation #113

The tendency in much of economics is to think in terms of closed system logic, ignoring context and worse, ignoring some of the states of the closed system.

Here are two examples

“The man who refuses to send his corn to market when it is at twenty pounds a load because he thinks that in two months time it will be at thirty [pounds],” Malthus argued, “if he be right in his judgment and succeed in his speculation, is a positive and decided benefactor to the state.” (Excerpt From: Linklater, Andro. “Owning the Earth: The Transforming History of Land Ownership.” .

But what if he is wrong and the market falls farther, or the people died or migrated? Or that the seller uses his excess profit to further try to monopolize the market? In this case one state of the system is treated as if it is all possible states.

The next example is from the public application of economic thought (efficiency, benefit to cost..). This is from the City of Santa Monica.

The results for the energy efficiency packages are presented below for the single family, multifamily, and nonresidential prototypes. Results include measure compliance margin, present value of energy savings, costs, and benefit to cost (B/C) ratio. When the B/C ratio is greater than 1.0, the added cost of the measure is more than offset by the discounted energy cost savings and the measure is cost effective.
As shown below, all packages are cost effective under the CEC LCC methodology, but the residential packages are not cost effective under the life cycle customer cost methodology. This is primarily due to two reasons. First, the space heating and cooling loads in CZ6 are very low, and most of the efficiency measures are related to improving envelope and HVAC characteristics. Thus, while the measures achieve a high TDV compliance percentage, the site energy savings and therefore the energy bill savings are minimal. Second, the consumer cost effectiveness uses NEM rates to value exported excess PV electricity generation. Using the current NEM rates and the natural gas costs that are not offset by the PV export, the net benefit to the consumer is lower than the cost of installing the ZNE package.

Note that approach is the cost of energy once the infrastructure is in place. There is no accounting for the cost to society of manufacturing the tech that is to be installed, So we get a false picture of costs. Not just the market cost of the tech but the cost of creating the factories and transportation to build the tech. costs not included in the market price but to society in the form of pollution.

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