Noah Smith recently posted his list of science fiction for economists. I am happy to note as an avid sci-fi fan and armchair economist, I've read almost all of those books (excepting the final two). What surprised me most was the inclusion of my favorite science fiction novel of the last decade, The Windup Girl by the supremely talented Paolo Bacigalupi. The first time I read it, I lost myself in enjoying the setting and characters of Bacigalupi's 22nd century Thailand. I was curious to reread it and to think about the economics of the book, and was again surprised at how well thought out - and heartbreaking - that world is*.
To summarize, the book takes place in a post-oil world, where coal is the main remaining fossil resource and energy is provided primarily by agricultural resources. Although it's not explicitly mentioned, I presume that the collapse of most high-energy technology has effectively prevented solar photovoltaics from existing in any quantity (because even low-quality refined silicon requires enormous amounts of high-quality energy) and that the same applies for wind power (presumably for reasons of fabrication). Another macroscopic aspect of the world are the so-called "calorie plagues." These are engineered diseases intentionally released into the environment by large agricultural companies around the world - more on those later.
It's important to start by noting that much of The Windup Girl fits most easily into a framework of economics in which energy is a fourth factor of production (besides land, labor, and capital). If we consider, for example, energy to be an input into providing transportation services, we find that we can substitute capital (e.g., a car) and labor (walking or pedaling) for energy (oil). And so on.
So, on to the economics of The Windup Girl.
First, since energy is much more expensive than in our era, many things become uneconomical. Elevators and climate control are no longer worth using when most energy comes from biofuels (mainly methane, since cellulosic fuels never got off the ground and food is reserved for people or animal labor). People are much poorer and lower productivity, and now must substitute labor inputs for energy inputs in such basic needs as transportation (bicycles), basic comfort (there are fan-wallahs again), and manufacturing. The last one is most significant, as most manufacturing energy is now powered by animal labor - using genetically modified elephants called megodonts - that can translate energy in the form of vegetable matter to kinetic energy.
The long and short of it is that productivity has gone way down, and income along with it. People are now forced to engage in low-productivity activities to meet basic needs that were formerly provided by additional energy inputs. The highest energy-density storage technology is now the "kink spring," presumably a torsion spring that provides kinetic energy. Electricity still exists but is reserved for government ministries that track military incursions or new disease outbreaks; computers and radios have small screens (9cm square!) and low volume, powered by treadles or hand cranks.
As the main remaining fossil resource, coal is the subject of a long-fought war between Thailand (which has absorbed Cambodia and parts of Laos) and Vietnam. War itself is no longer as energy intense; chemical propellants are rarely used except for artillery and tanks, while foot troops use hand-pump spring guns shooting rotating razor blades. War elephants make a comeback as armored megodonts firing kink-spring powered blade machine guns.
Another major theme in the book are the those of externalities.
The Windup Girl takes place in a future where groups that provide energy - namely, the so-called "calorie companies" that produce food products - have intentionally set out to destroy wealth in order to maximize their position. These companies have not only taken full advantage of terminator genes**, making any seed from plants that reproduce with their GMO completely sterile, they have also intentionally released engineered diseases to destroy others' crops. The book lists many, some of them also deliberately designed to infect humans: cibiscosis (presumably bacterial), blister rust (fungal), fa'gan (fungal), and Nippon genehack weevil (presumably a genetically modified analog of wood borer beetles). These are all continually updated and deliberately spread in order to achieve monopoly control over local food markets in otherwise sovereign countries, which have three options: yield to giving the calorie companies monopoly rents, starve, or employ their own "genehackers" to pirate the immunity from the calorie monopolies' products.
As a result, a vast die-off of wild and domestic plant species has occurred. Mangosteens, oranges, lemons, many beans, and a whole host of other plants no longer exist. The re-emergence of a varietal of rambutan and one of nightshade immune to the plagues is an almost world-shattering event. The most common crops are the ones most genetically modified: soy, corn, wheat, rice, coffee, and pineapple. That freshwater fish survived at all is attributed to the myopia of seed companies based in the US Midwest, unused to getting sustenance from fish farming. A few isolated enclaves of natural forest exist, protected by enormously expensive barriers formed by intense UV-light to sterilize incoming pollen and engineered diseases.
Despite the fact that these diseases in some cases mutate in the wild and now themselves constitute threats to continuing to grow food, the calorie companies continue to release new variations while protecting their own crops against their variants, those of their competitors, and the ones produced by natural evolution. And there is significant circumstantial evidence given in the book that the calorie companies are running out of options.
The third option - to pirate immunity genes - was taken in the book by two known countries: Finland and Thailand, both of which had gene banks to draw upon to help their own genetic engineering efforts. And ironically, the calorie companies seek the gene banks because their own strategy of disease release has gotten out of control. They are powerful and quasi-sovereign enough to have their own shock troops. The Finns destroyed theirs rather than see it get into the hands of the genetic modification monopolies.
Traditionally, I would think that externalities can often be solved by negotiation with an eye to the Coase theorem. On the other hand, here the Coase theorem fails because one party is no longer interested in wealth maximization, only maximization of its rents, and refuses to communicate. Rather than force communication, sovereign entities are instead forced to capitulate because in the end their populations require a minimum amount of food supply, and theirs has been totally and intentionally destroyed. The externalities in this case more or less amount to the effects of war.
In this context, the political struggle that provides the background to the story is particularly tragic. On the one side, you have a group that is in favor of free trade and on the other one in favor of isolation. However, ushering in free trade also means all the conventional economic benefits, particularly for the well-connected elite, but also accession to the IP agreements that protect the calorie monopolies while allowing them to unleash their wealth-destroying plagues with impunity and thus tying the country to the power of the agricultural companies. Isolation means continued poverty and restrictions on wealth growth but also continued independence.
* To be fair, I also reread the short story Calorie Man by the same author, in his anthology Pump Six and other stories. Takes place in the same universe, albeit on the Mississippi river rather than in Bangkok. Also highly recommended.
** Ironically, terminator genes have never been implemented in our world despite their development because Monsanto et. al. have never found a need to use them - they can protect their genetic modifications effectively with patent law and it would greatly increase costs to ship terminator seed every year rather than allowing farmers who pay license fees to replant.