Chapter III, Section B.  Economic fallacies in the face of entropy

The fatal flaws in economic reasoning are two-fold: that economic growth is unlimited, and that managing the disorder, waste management for example, is nothing more than part of the cost of doing business. The first economic fallacy could be called the “unlimited supply fallacy,” growth is erroneously assumed to be unlimited because supply is erroneously assumed to be unlimited. There may be variations up and down in supply, but it is assumed the price just adjusts to these variations according to demand, the variations in supply assumed to be passing irregularities, for example good versus bad harvest years. But it is assumed there will always be a supply. The second economic fallacy could be called the “no disorder fallacy.” Though some disorder might be managed as part of business costs--for example waste management as well as operation and maintenance costs--the total disorder created from producing a good or service is never entirely assumed by a single business. A business cannot absorb the cost of the disorder it creates in the environment and still turn a profit, at least not unless natural cycles are tapped to restore order to the environment. The difference in the ledger, the disorder expressed in energy terms, is thus accounted for by ultimately tapping solar energy.

Rifkin writes of the two assumptions, “The overall resource base is considered inexhaustible and always available, in some form, for the right price. The entropy bill [the waste stream and its associated cost], on the other hand, is considered, if at all, as an externality of doing business and marginal to the overall cost of conducting commerce.” (Rifkin p. 52) To admit that this cost may actually exceed the value of the asset would be to admit defeat, or as Rifkin puts it, “if even the goods and services we produce eventually become part of the entropy stream, then for all of our notions of economic progress the economic ledger will always end up in the red.” (Rifkin p. 53)