The Problem of Economic Growth

The Problem of Economic Growth

The problem with economic growth was succinctly summed up by Kenneth Boulding in his essay Economics and The Future of Man[1]:

For the last two hundred years the discovery of new resources and improved means of utilization of old resources through the advance of knowledge has proceeded faster than the expansion of population, at least in the successfully developing parts of the world. We are beginning to face the fact, however, that the kind of "linear economy," which is peculiarly characteristic of modern technology, which extracts fossil fuels and ores at one end and transforms them into commodities and ultimately into waste products which are spewed out the other end into pollutable reservoirs is a process which is inherently suicidal and must eventually come to an end, either through the exhaustion of the resources in the mines and wells at the one end or through the exhaustion of the "sinks", that is pollutable reservoirs, at the other end. The end of this spectacular process of development through which we are going could easily be a virtually dead earth with all its concentration of ores and energy sources depleted and all of its pollutable reservoirs filled up.

Various ways of avoiding the dead earth scenario described by Boulding can be imagined. One of the more popular visions of sustainability includes stabilization of the human population, utilization of solar energy, and recycling of materials. However, if we depend on the finite flow of energy from the sun and the finite supply of materials from the earth's crust and from it's biosphere, then flows of energy and materials through the economic machinery must reach limiting rates.

True believers in the growth paradigm are not fazed by such throughput limitations. They claim that with advancing technology we can dematerialize our economic output. That is to say that we can create larger amounts of use value out of given inputs of energy materials and thus keep capital markets healthy for a long time to come even in the presence resource limitations. Precisely how long human technology can work this magic is usually not specified, but as long as growth can continue for at least another fifty years the day of reckoning has been effectively moved into the infinite future, and you and I can breathe easily, confident that the world will not be cruel enough to require us to become mature members of the ecological community.

That dematerialized growth cannot continue forever is, I think, fairly obvious. Consider the logical end point of such activity; You give me a better back rub and I sing you a better song. Note the emphasis on increasing quality exemplified by the use of the word "better". I cannot consume exponentially increasing amounts of back rubs (or of any other dematerialized service) and you cannot listen to exponentially increasing amounts of my singing. The idea that generation after generation of venture capitalists can pay for their mansions by financing such dematerialized services is nonsense.

Furthermore it is clear that capital markets do not care in a direct way about resource depletion. They just want growth over the next few years. Holding down resource costs helps to create demand and growth. If one resource becomes expensive they will seek cheaper alternatives, but zero evidence exists that capital markets are capable of applying long term systems thinking to the problem of maintaining human welfare. Capital markets have no direct concern with human welfare. They just want to manufacture and sell as much stuff as they can in the short term. This desire to sell thing results in human welfare only the sense described by Adam Smith, in which it is assumed that since people buy what they want, the more stuff that is bought and sold, the more human desires that are being fulfilled. Systems intelligence is not needed. I just try to sell you stuff and the "invisible hand" of the market guarantees that we will all become happier forever.

Even if you assume that the satisfaction of advertising induced desires represents the epitome of human fulfillment, maximizing such satisfaction today, is not doing anything to guarantee that we can fulfill such desires (or indeed even meet basic human needs) in the longer term. In the long run the human species needs to learn to live with the limits of the ecological community of which it forms a part. I see two possible ways possible ways that living within long term limits can become part of our economic reality. The first way is to overshoot our resource base and get slapped down hard by nature. The second is to give ecological intelligence a primary role (not secondary or tertiary) in governing our economic institutions. Continued adherence to the growth paradigm would seem to have the proverbial "snowball's chance in hell" of leading to option number two

[1]Boulding, Kenneth E, Economics as Science, McGraw Hill Book Company, New York, 1970. Chapter 7

September 7, 2009