Universität zu Köln

Kuemmel, Reiner and Lindenberger, Dietmar (2014). How energy conversion drives economic growth far from the equilibrium of neoclassical economics. New J. Phys., 16. BRISTOL: IOP PUBLISHING LTD. ISSN 1367-2630

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Abstract

Energy conversion in the machines and information processors of the capital stock drives the growth of modern economies. This is exemplified for Germany, Japan, and the USA during the second half of the 20th century: econometric analyses reveal that the output elasticity, i.e. the economic weight, of energy is much larger than energy's share in total factor cost, while for labor just the opposite is true. This is at variance with mainstream economic theory according to which an economy should operate in the neoclassical equilibrium, where output elasticities equal factor cost shares. The standard derivation of the neoclassical equilibrium from the maximization of profit or of time-integrated utility disregards technological constraints. We show that the inclusion of these constraints in our nonlinear-optimization calculus results in equilibrium conditions, where generalized shadow prices destroy the equality of output elasticities and cost shares. Consequently, at the prices of capital, labor, and energy we have known so far, industrial economies have evolved far from the neoclassical equilibrium. This is illustrated by the example of the German industrial sector evolving on the mountain of factor costs before and during the first and the second oil price explosion. It indicates the influence of the 'virtually binding' technological constraints on entrepreneurial decisions, and the existence of 'soft constraints' as well. Implications for employment and future economic growth are discussed.

Item Type:	Journal Article
Creators:	Creators Email ORCID ORCID Put Code Kuemmel, Reiner UNSPECIFIED UNSPECIFIED UNSPECIFIED Lindenberger, Dietmar UNSPECIFIED UNSPECIFIED UNSPECIFIED
URN:	urn:nbn:de:hbz:38-420319
DOI:	10.1088/1367-2630/16/12/125008
Journal or Publication Title:	New J. Phys.
Volume:	16
Date:	2014
Publisher:	IOP PUBLISHING LTD
Place of Publication:	BRISTOL
ISSN:	1367-2630
Language:	English
Faculty:	Unspecified
Divisions:	Unspecified
Subjects:	no entry
Uncontrolled Keywords:	Keywords Language POWER Multiple languages Physics, Multidisciplinary Multiple languages
URI:	http://kups.ub.uni-koeln.de/id/eprint/42031