Ignorance of the Law is no excuse: Thermodynamics part 2

It’s apparently Perpetual Motion Day today on the web. Following up my rambling about the Second Law of Thermodynamics and business models that claim to “create value,” I spotted the following two articles. Can you see the common theme?

  • CNet: Getting gas from trash. “The two by-products of from digester would be methane, a liquid fertilizer, and solid compost. Eten envisions selling each of the products wholesale…. Eten said he was inspired by William McDonough, a designer who co-authored a book called Cradle to Cradle, which argues that a product lifecycle can be designed with little, or even beneficial, impact on the natural environment.”
  • BBC: Natural light “to reinvent bulbs.” “Previous attempts to make OLEDs like this have largely failed to make an impact because traditional phosphorescent blue dyes are very short lived. The new polymer uses a fluorescent blue material instead which lasts much longer and uses less energy. The researchers believe that eventually this material could be 100% efficient, meaning it could be capable of converting all of the electricity to light, without the heat loss associated with traditional bulbs.”

Yes, folks, trying to violate the Second Law of Thermodynamics as a core part of your business plan is probably a bad idea. In the first case, it’s certainly laudable to try to do something about garbage production, but the question is: can selling methane, compost, and fertilizer produce enough money to offset transportation and holding costs? Probably if the raw material is free… but there’s no free ride in the world and I would expect waste management companies or the supermarkets providing the raw material to eat up any profit margins to be had from converting their wastes to usable products.

In the second case, the researchers have either been misquoted or neglected their thermodynamics education. Heat is always a byproduct of the translation from one form of energy to another, unless that translation does no useful work at all.

Bartering up: capitalism and the laws of thermodynamics

Great story today about a guy exploiting (in a positive way) the power of Craigslist, and conducting a series of barter exchanges that so far has started with a red paperclip and ended with a year’s free stay in a house in Phoenix.

Of course, any reader of This Old House Magazine knows that there are many old houses that are available for essentially free, provided you can move them or otherwise improve them. So theoretically Kyle MacDonald should have had his house a long time ago. But this is the rub about Craigslist: it’s not a perfect market, because not every buyer or seller is plugged into it.

The larger economic point that is missed by the article, and by the premise of MacDonald’s experiment, is that there is no way to overcome economic friction. Part of what MacDonald is doing in his “trades up” is exploiting private valuations of goods that are lower than his own private valuation, and thus apparently creating value in the trade. But this overlooks the value of MacDonald’s time and the opportunity cost that he incurs by spending time on this project. The other factor is the value contributed to the project by people like Annie Robbins who acts economically irrationally because she admires the anticonsumerist principle of the exchange, and by the snowmobile company that donates goods and travel in exchange for marketing publicity. In fact, that particular trade may well have destroyed traditional value somewhere along the way.

So here’s the larger economic question: are market exchanges in particular, and the market in general, subject to the laws of thermodynamics? Is it possible to have a trade that “creates value”? Or is what happens merely a shifting of value from one party to a different party with some inevitable loss of friction?

A lot of modern negotiation theory is based on the principle of the “win-win” where both parties at a table derive benefit from a trade. The question is: who loses? Does every win-win have an external party somewhere who is not represented at the table who is disadvantaged by the trade in some way?

These aren’t theoretical questions. A lot of the politics that surrounds business is based on the conflict between people who believe in win-win (or at least tout its value) and people who argue on behalf of the damaged external party. Think industry vs. environmentalists.