The eco-socialist movement argues that we can’t have exponential growth on a finite planet. By exponential growth I assume they mean that GDP (Gross Domestic Product) can’t keep rising in percentage terms (which creates an exponential effect).
I’ll come right out and say it: as an economist I think endless growth is technically possible. The key word there is technical, because my reasoning is nerdy and economic. However, the more important point is that I believe this is a pointless topic of conversation.
In this first article I will give my technical response to the question to satiate the eco-socialists who want the question answered. In a second article I will set out why this conversation is pointless and what better ones we should be having.
The eco socialist argument
It is a fairly simple argument and contains enough “truthiness” to convince a lot of people. The line of argument goes like this:
- Economic growth consumes resources.
- We live on a planet with finite (limited) resources.
- Therefore eventually, we must run out of the capacity for exponential economic growth (unless we start mining asteroids etc).
The economist response
I don’t want to speak for a whole profession here, so I will speak for myself. That said, I think many economists would agree with what I have to say.
I completely accept we live on a planet with finite resources. Thankfully I doubt we will ever use them all because they eventually become too expensive to extract. And usually, thanks to the wonders of human ingenuity, alternatives become available.
Nonetheless, there are two ways that exponential growth is possible even with limited resources: productivity growth and inflation.
More from less
The first and most important is through productivity growth. Think of this as working smarter, rather than harder. Some people call this getting more from less. In simple terms, economic growth is made up of productivity growth and using more resources. We can’t do the second one forever, but we can keep doing the first. In other words, resources are limited, but human creativity and innovation is not.
If you want to increase our incomes without using more resources, productivity is the answer. And crucially if you want to use fewer resources and keep our income the same, productivity is also the key. Without productivity growth pretty much the only way we can our emissions reductions goals is by all becoming peasant farmers. That isn’t my idea of fun.
Here is a simple example. The amount of aluminium used to make a drink can has halved since the 1970s. There are massive environmental benefits from this, but the change hasn’t been driven by environmentalism, just the pursuit of profit. Cans just hold liquid, as long as they do that job, nobody cares. So companies have had an incentive to make the packaging as minimal as possible.
A better example of this is the information technology revolution. Humans have hugely improved the power of computers in recent years. We can do much more with them, and this power combined with evolving software allows us to do (consume) a lot more without using more resources. Logistics is a lot more effective with IT, saving a lot of resources and reducing carbon emissions. Think of all the devices that are now in your phone and all the things you can do with it! There is a computer, a calculator, a watch, a phone, an alarm clock, a stereo… this has reduced the need for a lot of stuff.
The trouble is here in New Zealand MOST of our growth comes from using more resources. In particular over the last decade it has come from a rising population. We have more people, working longer hours, milking more cows in places they shouldn’t be. That is not cool. We should be aiming to emulate overseas countries and improve our productivity so that we can get more from less. This is central to what TOP is about – working smarter as a country. Ending our love affair with speculation on land prices and investing in businesses that actually create jobs and exports is a massive part of that.
In short, growing our productivity is really important, and New Zealand has generally sucked at it.
Inflation
The second way to have growth is through the magic of economic jiggery pokery; i.e. inflation. Nominal GDP is made of of the volume of goods sold, multiplied by the price. This can continue to rise indefinitely without using any more resources, just through prices rising.
Sure, this is not real GDP growth. No one’s income would be any higher in terms of purchasing power, but it is nonetheless a form of exponential GDP growth.
The Reserve Bank is tasked with ensuring there is a little bit of inflation in the economy. The reason for this is that if prices fall, the concern is that people will not spend their money, waiting for prices to fall further.
Some economists believe that given the economic malaise faced in many parts of the developed world, monetary policy should shift to targeting nominal GDP. In other words, allowing for either GDP growth or prices rises, or a little of both. This is being trialled at the moment in Japan - it will be interesting to see how it pans out.
You’re probably thinking blah blah blah economics schmeconomics. This is a pretty technical answer and I agree. That is because the topic itself: exponential growth on a finite planet is stupid. I’ll set out why in my next article and talk more about the questions we should be asking.
*Geoff Simmons is an economist and the leader of The Opportunities Party.
45 Comments
Top article , Geoff ... I'm counting the seconds before the resident eco-socialists come on site and slag you off ...
... but the Gummster is in accord with you , and awaiting the follow up piece ...
I was in Amsterdam last year , admiring van Gogh's painting " the potato eaters " ... the eco-warriors who wish us to return to that , ought to look long and hard at that vision ... it's no picnic being a peasant farmer...
Eco warriors, everyone else pays the price of them feeling good.
https://youtu.be/v1eNcuGcPW4
(The tribal bit is Sydneys problem)
The potato eaters are here already.
Calling out Taranaki.
Lots of good paying jobs gone as gas exploration is stopped. Stopped when location of new reserves are known.
Dairy farm production to be capped.
Rural credit has stopped by 4 banks, dutch only one working picking out the eyes.
Small townships plagued by meth, see the drug related asset seizures reported last week.
. . it makes me terribly sad to think of how this COL destroyed the future of nat gas .... $ billions of export earnings , companies , specialist jobs ... all because of a warped Greens ideology ...
In the same way PM Clarke destroyed sustainable logging on the West Coast ... with worlds best practise behind it , science on board , 100's of jobs .... vanished .... POOOOF .... gone in a smoke of ideological woolly headed idealism.... sadly ....
Child: mummy when I grow up I want to be socialist.
Mother: yes darling, but you know you can't do both.
Imagine bacteria on a Petri dish. Let's say the population grows exponentially in that it doubles every minute, and lets say it takes 24 hours for the dish to become full. If the Petri dish became full at midnight then at what time was it half full? The answer is one minute to midnight! That's the nature of exponential growth. It ticks along under the radar before it explodes. At two minutes to midnight the bacteria probably though they were doing okay. I agree innovation can bring about paradigm shifts but even innovation has it's limits.
A massive die off in Bacteria of course and from memory it stabilises again at a much lower level. Exactly the same is going to happen on this planet with the Human race, you have got rocks in your head if you cannot see that continued exponential population growth is not possible.
Not sure where you get that data but UN median projection is for 9.7b in 2050 and 11b in 2100 and still growing (although slower by then hopefully). In saying that if we went all out with empowering woman etc there is a remote possibility of stabilising at 9-10b late this century.
. .. great rebuttal ... I was having a good larf at DDs post ... but in all fairness to DD , it a curd that perhaps they were confusing Geoff Simmons and TOP , with Vernon Tava and his new party , Sustainable NZ . .
Eitherwhichway , 2020 promises to be an exciting year in politics ..
I said TOP, not the article, buddy. With the exception of gene editing their environmental policy is almost indistinguishable from that of the Greens. And they want the State to charge the populous annual “rent” on all of their major assets. Put these policies (among others) together and you have eco-socialism.
I'm a TOP party member, but only just. I had read your comment as being targeted at the Green Party (a.k.a the SJW Party to me). But I don't see how a capital tax + a corresponding reduction (so a - in the revenue deductions) for company & income taxes, along a "green" set of policies constitutes Marxism. Please elaborate.
I'm not worried about "Peak Oil" since the predictions of doom and gloom have been proven wrong again and again and again. What I am worried about is "Peak Technology." Once we reach Peak Technology, it will indeed be the beginning of the end.
Don't forget that the Stone Age didn't end because we ran out of stones.
The second argument is an obvious strawman not worth engaging. Whenever anyone says the phrase "infinite growth isn't possible on a finite planet" - a total of 8 words - they obviously aren't talking about nominal GDP but actual real, or even sustained, standards of living for the ever increasing number of humans on the planet. Talking about inflation is obviously avoiding the point that the phrase is making.
The first argument simply isn't true. Sometimes there simply are resources that can't be replaced by other things - helium is a good example. There's a finite amount of it (until we can learn to create more via fusion) and it's myriad technical and medical uses can't all be replaced by other compounds, at least not for the same price. Helium is a pain to manufacture, transport and manage, yet people do it because there's no better alternative available.
You even acknowledge resources being limited in your own answer, by saying that they can become uneconomical to extract. The resources might technically exist but if they can't be accessed/used profitably they might as well not.
Your example of the aluminium can is curious. Ok, so the aluminium content has reduced by 50% since the 70s. Due to jevon's paradox, there will now be more aluminium used by cans today than there was in the 70s, even though each can uses less aluminium. But you can't go to 0% aluminium in an aluminium can - productivity gains simply are not unlimited as you claim. And we use aluminium because it has all the properties that are ideal for these products. By definition that means an alternative material would be overall more expensive to use because it isn't as good at performing the job. So say we go from 100,000 aluminium cans produced at a cost of $X, and now we are forced to replace aluminium with something else which is overall more expensive, so now we can only produce 95,000 of these cans for $X. That's an example of the economy shrinking, not growing - we can now only provide 95,000 of these goods due to inferior materials where previously we could provide 100,000.
Also you must consider that even if something 'can' be replaced by something else, it doesn't mean there isn't a huge amount of built-in infrastructure that makes this infeasible. This is a big contributor to why electric cars are more popular than hydrogen or natural gas alternatives as a replacement for gasoline cars - the infrastructure to charge electric cars is already available whereas LNG/hydrogen needs new expensive infrastructure to be rolled out, putting it at a big disadvantage before you even get the first vehicle on the road that uses it. Again if you go from a case where a country can have 100,000 cars and 2,000 petrol stations, to a situation where the country can have 100,000 alternative fuel cars but also need to build 4,000 new alternative fuel stations (due to the nature of this fuel), the total cost to the country is greater in the second scenario, so the 'real' standard of living has decreased. Basically a variant on the broken window fallacy - being forced to spend money on new product X to counteract the problems with the replacement product Y isn't actually growth in the economy, the amount of money spent on X is a deadweight loss compared to the status quo.
By definition that means an alternative material would be overall more expensive to use because it isn't as good at performing the job. So say we go from 100,000 aluminium cans produced at a cost of $X, and now we are forced to replace aluminium with something else which is overall more expensive, so now we can only produce 95,000 of these cans for $X. That's an example of the economy shrinking, not growing - we can now only provide 95,000 of these goods due to inferior materials where previously we could provide 100,000.
Except if there is demand for 10,000 cans then we will still need to make 10,000 cans from the new material at a cost of $X + a bit. Economic growth!
And your entire theory is predicated on the new material not being as good.. what happens when the new material is better? Certainly when we stopped using animal bladders and pewter we didn't take a step backwards.. why assume the next step would be backwards?
Except if there is demand for 10,000 cans then we will still need to make 10,000 cans from the new material at a cost of $X + a bit. Economic growth!
That's not economic growth, it's inflation, because you have to spend more money to get the same output, which as I already outlined, is merely a strawman argument when it comes to this phrase.
And your entire theory is predicated on the new material not being as good.. what happens when the new material is better? Certainly when we stopped using animal bladders and pewter we didn't take a step backwards.. why assume the next step would be backwards?
Because if the alternative is better then it will naturally be used and replace aluminium anyway.
If we are using the alternative only because aluminium is no longer available / economically viable, then by definition its an inferior product to the aluminium we would otherwise choose to use.
Societal progress is broadly measured by things getting cheaper, not more expensive.
Good article Geoff. However, while exponential economic and productivity growth are technically possible (and usually desirable) on our finite planet, endless population growth is not. An end to population growth and adjusting our economies to live with a stable or declining population is fundamental to long term local and global sustainability
NZs small population/low population density IS our key economic, social and environmental advantage. Successive governments chasing high population growth via mass immigration to ensure headline GDP growth is the root cause of our country's productivity failings as well as social, environmental decline. Make this TOPs priority and I'm sure you'll pass 5%. If not the debate will get lost in the superficial arguments between the right and left.
Why didn't you just say smoke and mirrors in the first place and be done with it, because two into one still does not go! There is no infinite growth to be had in a finite world, stop deluding yourself.
If we do not start thinking differently, we will go back to war with each other, in order to create another opportunity for growth once we've destroyed everything and culled our numbers.
No-one will ever run 100m in nothing flat, and you cannot keep making aluminium ever thinner because eventually there will be nothing.
We can argue this topic til the cows come home but Kauri's right, 2020 is an important year for NZ Inc and the narrative for the election cannot be high-jacked by the eco-socialists. We have enough people & resources, we just need to get our productivity-per-person up. If you can make immigration the narrative based around productivity per person & win the argument, then we don't need another 50,000 people every year. We didn't last year, or the year before that either. Perhaps 15,000 net with higher points (per industry) could be enough? We have something quite unique & (yes) special here in NZ. Let's not totally sell it out to the Asians just yet.
I was right with you until the last sentence. When the subject of immigration comes up in political discussions here, calls for lower immigration are often labelled as xenophobic, whether because the people genuinely believe it or they just want to shut down the discussion. I don't accept this, and like you I think there are good arguments based solely on standard of living etc. You talk about the need to "win the argument", but if you go around saying things like "Let's not totally sell it out to the Asians just yet", then you're making the xenophobia people's point for them
I was thinking that the low interest rates are because we're finding it hard to keep paying to consume the future. Debt is nothing more than dragging consumption forward.
https://www.epsilontheory.com/the-long-now-pt-4-snip/
Rubble down below
https://www.hussmanfunds.com/comment/mc191230/
"If you want to increase our incomes without using more resources, productivity is the answer."
Income is ALWAYS a call on resources. Otherwise what use can it be?
You are saying we must continually make stuff for less (energy input) - which is true to avoid eventual system collapse.
But we fight diminishing returns & feedback loops on all fronts. And its clear from ever expanding Debt burdens and ever lower interest rates we have been losing the fight for 40 years. We are leveraging and releverging hoping for some break in the physical laws which doesnt come...
As far as GDP expansion....
ask yourself - how much is your 2 million dollar mansion worth at a 0% interest rate? 2 million or (monetarily) nothing?
If money is free it has no worth ....
As far as tech & innovation utopias ...
Ifs like saying we now have the tech to kill possums.
So why arent we ?
Not so simple in the real world and then theres those nasty feedback loops ...
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