Economic growth and people’s happiness?

Part 2

To identify the roots of “people’s happiness” and motivated by the connection of happiness to wealth,

https://medium.com/@dimkoup/economic-growth-and-peoples-happiness-part-1-3de7d1f7e163

a crude modification of the Solow-Swan model was developed to dig deeper into it. Namely from the standard version

The Solow-Swan model equation.

where K is the capital, A is the labor-augmenting knowledge, L is the labor, and α is a correction factor, to the modified version

The modified Solow-Swan model, restructured as a sum of products.

where k, a and l are equivalent quantities per member of a group (for example a Nation/State). From this modification in the model, two observations stand out:

1. The wealth produced for each individual by his/her own capital, knowledge, and labor, is far less than the potential for wealth produced by the sharing of the above resources with others. The more sharing and exchanging, the more wealth is produced for each member of the group.
2. All quantities (capital, knowledge, and labor) are directly or indirectly associated with energy.

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Energy

Starting with the second observation, the equivalence of capital and labor with energy is more or less obvious, capital is accumulated resources translated into money, while labor is an alternative definition to work, which is the energy in classical physics. Knowledge or labor-augmenting technology is less obvious, although knowledge is the accumulation of information, which through entropy (as defined by Claude Shannon) is also related to energy as well. For readers who are skeptical about the relationship between information and energy, the fact that the brain is the most energy-demanding organ in the human body might be more persuasive.

The notion of the importance of energy to the progress of civilization is far from new, and the best testament to this is the Kardashev scale. In a nutshell, intelligent civilizations can be categorized into three types, planetary (Type I), solar system (Type II), and galactic (Type III), depending on the energy that they can fully exploit. Needless to say that humanity is still Type 0. However, all this sounds too exotic for the average person, and the acceptance of energy as a definite metric of progress is restricted in the community of physicists and maybe some science fiction fans.

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Apart from the Solow-Swan model, key observations from history also agree with the use of energy as a metric for wealth, since all the technological revolutions in history (primarily the industrial revolution) involved a leap forward in energy production (which should be called energy conversion from one form to other). Therefore, the historical consensus about energy is clear; if a State wants more wealth, it needs to secure more energy. This is also in agreement with the history of warfare since almost all wars were conducted between States that were aiming for the same natural resources.

However, there is a small detail that does not agree with the historical hunger for energy. As Types, I and II of the Kardashev scale suggest, the enormous bulk of energy in the solar system is the radiation from the Sun. The radiating energy from the Sun that reaches Earth in a second is about 10000 times as much as the total power that humanity consumed in a year (measured in 2020), making the Sun, the major energy provider in the solar system and the reason that life exists on Earth, an untapped resource for humanity’s needs.

The reason for this is obviously not because countless leaders of kingdoms and empires of the past were stupid. If technology was available to convert and store solar radiation to a form that would be used at will to feed their people, destroy their enemies or create magnificent statues in their name, they would take it.

As you may have guessed, there is (almost) one today; renewable energy sources, especially wind generators and photovoltaic arrays. There are other technologies as well, but they all suffer from similar issues. Wind power is about harnessing wind energy (indirectly solar energy) and converting it to electricity. PV’s on the other hand, directly convert solar energy to electricity. However, both technologies cannot address the energy storage issue yet and they just recently established themselves as more cost-efficient than fossil fuels.

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Sharing and exchanging wealth and information

Sharing wealth sounds like coming out of a priest’s mouth since it is central to the preaching of most major religions today. All organizations that perform charity for the poor and fragile citizens in every society, practice sharing of wealth. It also sounds like a fairy tale since (we know that) neither corporations nor States share the wealth with their competitors; on the contrary, they devour their competitors aiming for monopoly (corporations) or global dominance (States). Yet, neither of the two practices proved viable in the long run. Corporations that reach monopoly are seized by the State to satisfy the public anger for the high prices of goods that are considered essential. Time and again, empires that reached global dominance were disintegrated by internal revolutions or external threats, or both. It is not accidental that the dominant model of the corporation today is the one that has many shareholders and is governed by consensus. It is also not accidental that the dominant model of government today is a constitutional democracy.

In addition, the policy to grow bigger is not the only way for a State to survive these days. The world is full of examples of States that possess no significant resources, have small to minuscule land mass, have a small population, have small armed forces, and yet they thrive in most surveys and metrics, especially in the GDP per capita.

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Sharing knowledge is also good for collective wealth. The prime example is the Internet, being the dominant medium for sharing information across the planet, without it being the only one. The examples are more than a few and are increasing. One only has to consider the communities around the world that operate under the word open, such as open source, open governance, open hardware, and open universities, just to name a few. And apart from creating a positive impact in their industries (despite the fears expressed by the traditional industry representatives) they are expanding instead of shrinking.

Sharing all parts of the equation, capital, knowledge, and labor by collective distribution is also good for collective wealth. There are numerous historical examples of communities that thrived in suitable environments, or survived in hostile environments by practicing collective distribution of resources.

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Finally, the largest and most ancient asset for wealth increase is the exchange between forms of wealth (capital for information or labor, information for capital or labor, labor for capital or information), also known as trade. Trade was the primary source of wealth since the dawn of civilization and still is today. The exponential growth of trade accompanied the globalization that took place during the ’90s. Trade is the driving force and not the result of wealth expansion, and is accompanied by all the other forms of wealth exchange and distribution.

Theory formulation

Based on the above, I will attempt to form a theory.

Although people’s happiness and people’s wealth are different, they are related. Since happiness is not something that can be counted, counting wealth is a fair alternative.

Any group’s (family, community, State, all humanity) wealth is directly related to the generalized energy/wealth (capital, knowledge, labor) that is directly available to each individual to use for his/her needs. The losses in the process of converting energy from one form to the other until the final recipient, offer nothing in the total wealth (energy waste), hence energy efficiency is as importand as energy production.

In the struggle of groups for more energy, all options should be addressed, starting with the sources with the largest reserves. The analysis for each option should address the consequenses and mitigation measures and include them in the decision making process. Managing the available options should be repeated frequently, since an option that is not feasible today might be the best in the future.

Exchange and sharing of wealth between the individuals of a group is more beneficial to the group than central distribution. This means that when the leader of the group aims for tighter control, this has adverse effects in the group wealth.

Equivalently, exchange and sharing of wealth between States is more beneficial to the States themselves (and civilization) than isolation. This means that in the extreme case where a State conquers the entire world, the world will become less wealthy, even without counting the distruction caused by the wars to achive it.

A uniform increase in the wealth for all members in a group is more beneficial to a non-uniform, in terms of the overall wealth increase of the group. It should be noted that the most common model of wealth distribution is the Pareto distribution, which depicts reality. However, aiming for a uniform increase in wealth is massively different from aiming to change the wealth distribution from Pareto to uniform (a society where all citizens have equal income).

Exchange and sharing resources within a group provides more benefits than just the increase of wealth. The team effort to share and exchange wealth successfully provides to the members of the group a sense of purpose in life that exceeds the boundaries of wealth.

Applying the above principles as policies comes with consequences that have to be mitigated. However, the use of the term “more beneficial” means the application of each principle plus the mitigation cost produces more wealth than applying the opposite plus the mitigation cost.

The above principles form a theory that, like any other theory describing physical phenomena, is subject to the observations, and thus becomes more relevant if the observations agree with the principles, and need to be tuned or rejected if the observations deviate from them. I would really appreciate it if the interested reader would commend observations that deviate from the principles, for the theory to be tuned or ultimately thrown in the recycle bin.

Decisions directly related to the application of the theory

The following are sorts of decisions based on dilemmas that are relevant in our days. Some readers may not agree with the dilemmas, however, this means in their mind that the alternative option to a dilemma is not practical or even not feasible.

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1. Fossil fuels vs renewable energy fuels. Due to the ongoing climate change, this is a dilemma that seems to have been answered. However, a few years ago climate change was considered fake by many (including leading politicians) and the dilemma was a hot topic for debate. I will address it by leaving the climate change issue temporarily out. This is an issue between tapping a reserve with capacity left comparable to the yearly needs (fossil fuels, at most 100 years without increasing production) and a reserve whose depletion horizon is far away (Sun, a few billion years) and the current percentage of exploitation is very small. In addition, a good measure of cost and efficiency for fossil fuels (including extraction, transportation, purification, distribution, and thermal engine efficiency) would make someone wonder why they were used in the first place. The honest answer is that they kickstarted the industrial revolution that provided the technologies that made renewables practical today. However, there was never a consensus that fossil fuels were used on borrowed time since if there was, the re-transition to renewables would, in my humble opinion, take place many years ago.
2. Centralized electricity generation and distribution vs interconnected local grids with self-sufficiency. This is a topic that would make people wonder why this is a dilemma at all. However, many of the emerging technologies are challenging the model of the centralized electricity distribution that all states use today. According to the theory, the choice will be for the second option. Furthermore, projects such as the Danish wind island and the proposed massive solar array in North Africa, although renewables, should not be favored.
3. Mega Cities vs strong rural communities. There is a lot of sentiment whenever we bring up our hometowns or the hometowns of our fathers and grandparents. The obvious answer is that we would gladly move out of the big city, but it is not possible. The application of the theory states that it is possible if rural communities are offered access to knowledge and opportunities to expand their wealth. Mega Cities seem efficient on the surface since a single pipeline can support millions of residents, however, neither the support of the intra-city distribution network, the destruction of natural resources in order to create living space, nor the turning of the regions close to the metropolitan areas into fields just to support the city is taken into account during urban planning. Thus, the theory supports strong, self-sufficient, and interconnected, rural communities.
4. Specialized production and global mega trade routes vs localized production and interconnected small trade routes. Once again the answer is that specialized production and global trade routes are the best options for the economy. After all, most economists agree with the notion, stating that this is trade efficiency. But, how many of us have seen a product that was actually produced a few kilometers away from our residence be sold in our local store for a ridiculously large price having been imported from a faraway land? At least I have in a lot of cases, and I live in a Country where the strongest industry is tourism, thus this can occur only for agricultural products. There is no economic theory that can claim efficiency for this, so all economists confronted dismiss it as the exception to a successful rule. Efficiency (which is just as important as production) dictates that the distance for a product to travel from production to consumption should be minimized since every movement is a waste of energy. Thus, the theory supports localized production and interconnected small trade routes between parties that are in principle sufficient.
5. Strong central government vs weak central government with strong regional governments. The answer to this is almost funny: it depends on who is asking and when. There were many statesmen that, in their careers, when they held regional offices, were advocates of regional autonomy, but when they reached the office of central power, they became advocates of increased central control. As a reader might imagine, the theory advocates strong regional governments.
6. Nuclear energy vs renewable energy. Nuclear energy passed many phases since the 50's when was introduced by the Eisenhauer administration in the United States. Initially a solution to the observable depletion of coal reserves, then a subject of superpower rivalry, afterward a subject of anti-nuclear war protests, then the subject of environmental crusades due to the nuclear accidents of Chernobyl and Fukushima and due to the real issue of nuclear waste handling, ending up being too expensive as an investment and too costly to handle. It is the only source of energy that is not directly related to the activity of the Sun, but there are two options. Nuclear fission, which was the technology that was involved in the turmoil of the last 50 years, and is now applicable, is still very much like fossil fuels since the uranium ore is actually mined. Nuclear fusion, which is in experimental phase for many years now and most probably will remain for a few decades, has the potential to tap a reserve beyond what is already provided by Solar radiation. Thus, the theory supports renewable energy to meet humanity’s energy needs and more research on nuclear fusion, without identifying any reason to apply resources to nuclear fission.

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The above are just some of the issues that can be addressed in order to test the theory for its relevance and usefulness.

Conclusion

It would be unfair if I missed the personal inspiration for this. My favorite writer since my teenagehood is Isaac Asimov, who affected my thinking, especially with his Foundation series and the concept of psychohistory, stating that humanity’s future can be one day directed away from self-destruction and towards perpetual happiness by applying the scientific method. A profound effect on me also had the work of John Forbes Nash Jr. and his work on game theory, especially the Nash equilibrium which states that there is a solution to a problem that everybody walks out satisfied, and the need for conflict is no longer necessary.