The End of Growth

The End of GrowthCould economic growth actually end? The environmental study “Limits to Growth”, published in the 1970’s, was the result of the digitally modeled inventory of the world’s resources and depletion rates. At that time Limits to Growth suggested that sometime after 2020 world economic growth would slow or even stop as environmental hard limits were reached. The books was revised each decade and the conclusions remained pretty fixed – growth would end. This book, “The End of Growth” explores the possibility that limits to growth might exists and that we might now be bumping up against such limits.

Economists rarely recognize limits to growth since economists believe that resource substitution and ingenuity will always prevail thus opening up new frontiers for future growth. This gives me warm fuzzy feeling but the evidence for it has some huge gaps. More on this later.

Limits to growth recognizes resource substitution and points out the problems with “peak oil” theory, primarily, resource substitution (eg. switching from whale oil to mineral oil) rarely occurs because resources run out. The world still had whales when we switched from whale oil, we switched because whale oil became expensive as supply ran short. The same is already happening with crude oil. We are not running out of crude (and likely never will), we have run out of CHEAP crude and likely will never find more. (Richard Mueller points this out in his book “Energy for Future Presidents” to be reviewed soon). While the world is constantly finding more oil, we are finding it in hard to reach – say expensive, locations. The same is happening with coal, uranium, iron ore, rock phosphate (necessary for plant growth) and more. In most of Europe mines with high quality hard coal have already been exhausted and now lesser brown coal (lignite) is being mined. Already Europe has turned to coal imports. China has tons of coal, but again the easy stuff has already been removed and currently coal is mined hundreds of feet underground and transported hundreds of miles to market. All of this resource exhaustion means diminishing rates of return. Rates that will likely never recover.

To cover the worlds energy needs, countries will turn to more and more desperate measures: deeper drilling, offshore drilling, artic drilling, biofuels, nuclear, etc. Accidents like Deepwater Horizon and Fukushima will become more common as energy costs rise and growth is pushed into marginal regions.

While energy depletion is the primary cause of the projected “end of growth”, politics, environmental degradation, and debt overhang will contribute. In the end it comes down to the simple question of how can 6 billion plus people prosper in a sustainable way.

On the political front America spends more on military spending than the rest of the world combined! Most of this is financed by borrowing. With a shrinking middle class in America who will be left to pay this debt? Already this debt represents a sizeable chunk of the governments budget – money that can no longer be used to finance the innovation required to address increasingly complex societal problems (climate change, energy, etc). Until government recognizes that limits to growth exist, the problems will worsen.

This book ties in very well with the theories described in “Our Finite World“. Our Finite World is a blog done by the actuary mathematician researcher Gail Tverberg. In her blog Gail argues that increasing costs of energy will slow growth, until demand for energy drops, prices fall, which causes increased oil consumption which increases price, which collapses demand, ad infinitum;  one big cycle of downward growth. The problem isn’t that we are running out of energy, it’s that our economy is built upon cheap energy.

Why have economic textbook theories of growth missed this? Because all economics textbooks were written in the same epoch or era – the era of cheap energy. The industrial age has been an age of unprecedented cheap energy, but just because the last 250 years were this way is no reason to assume that this will continue.

This leads me to my current read “Collapse” by Jared Diamond. Collapse is really a study of other economies before the era of cheap energy. It may be the most reliable prediction of our future once our energy is no longer cheap.

Returning to this book “The End of Growth”, the question becomes “Has growth already ended?”.  A closer look at our current state seems to imply that grown has been dead since at least 1998. Real household earning haven’t increased in the past decade and in some cases countries, average real personal incomes have fallen since the Regan era. Unemployment is rising and once environmental degradation is taken into account (a true cost) it seems likely that we have not seen real growth for quite some time.

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