No Limits to Growth

by Will Wilkinson on August 4, 2008

Here is a thumbnail sketch of my position on the sustainability of economic growth. What do you think is wrong with it?

(a) energy is not scarce; the historically most efficient sources (oil, coal, etc.) are;

(b) a well-functioning price system will shift energy consumption to (cleaner) alternative energy sources as prices for historical extracted sources of energy rise;

(c) the initial high price of alternative energy will temporarily slow growth, but competition and technological progress will eventually push prices below the historical trend and even asymptotically approach zero, increasing average rates of growth;

(d) environmental quality is a global public good, but;

(e) this is most likely to be secured as a consequence of growth — as a consequence of the technological innovation that both creates and is created by growth — together with the rising scarcity and prices of the most environmentally degrading energy sources.

So,

(f) there are no meaningful limits to growth from either the scarcity of energy, or from negative environmental externalities from economic production, since in the medium run, those externalities are positive.

Viewing 36 Comments

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    I think I pretty much agree although growth is not only energy dependent. There's food, water , infrastructure, homes, things like copper and a dysfunctional finance system to consider.

    This step;

    (b) a well-functioning price system will shift energy consumption to (cleaner) alternative energy sources as prices for historical extracted sources of energy rise;

    Is key and is a problem with oil companies controlling the message, the politicians and in effect the market. The "free market" oil companies rely heavily on big government to protect them. They are basically using a product of the commons and buying off our government and controlling the energy market with those profits. Well functioning price system... absolutely but how to get there??

    The current senatorial debate ( I think ended now on Republican filibuster) was to shift current subsidies from oil producers to renewables). The oil guys won out again.

    ""Make no mistake," Carl Pope, executive director of the Sierra Club, said in a statement, "this minority chose protecting big oil instead of promoting affordable clean energy and protecting their constituents from the crippling energy prices that are wrecking our economy."

    Under the bill, roughly $17 billion in tax breaks to the oil industry would be transferred to promote wind, solar and other renewable energies over the next 10 years."

    http://washingtonindependent.com/view/big-oil-s...
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    Pretty good argument you have
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    (e) is irrelevant to your point. We need to know whether it is _likely_ in absolute terms that growth will result in good environmental quality, not whether it is the _most likely_ cause of good environmental quality
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    What if a particularly sharp increase in resource scarcity overwhelms the price signal subpoint (b) assumes? Although I don't subscribe to peak oil hysteria, I am somewhat worried by the prospects of an extremely increase in the cost of petroleum extraction. In other words, an abbreviated transition period between readily available oil and the absolute collapse of fossil fuel infrastructure would probably undermine alternative fuel development.
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    Extremely sharp increase . . .*
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    Nothing's wrong with it except for Congress. Your model doesn't show huge amounts of corn being grown to make ethanol. And so on. Models that attempt to make predictions but which don't incorporate public-choice theory are incomplete.
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    (b) begs the question of whether it is possible to develop suitable alternatives to oil. We seem to be able to generate electricity through nuclear/wind/solar/hydro/etc but I'm not sure if that's enough to work as a replacement for the place oil takes in the global economy.

    But if we accept that we can I think we're all good and the rest of your argument works. I definitely see that there's no chance of the rich countries voting themselves into poverty to save the environment.
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    (f) is an assertion and not a conclusion, moreover, with the double whammy of global warming and ocean acidification happening *now* you cannot necessarily hold that the externalities will be positive, absent some cap-and-trade mechanism in the medium run.

    (e) is patently false, as in recent history environmental quality has been secured by law and not by innovation in a vacuum. Consider for example the CFC ban or the great reduction in acid rain. Absent a change in the law, there would have been no market mechanism that having businesses installing scrubbers and developing cleaner ways to burn coal "just because", likewise, there was no short or medium-run market mechanism that resulted in a great decrease in use of halogenated hydrocarbon use.
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    The devil is in (c). It reminds me a little bit of how an economist opens a can on a desert island. (Assume the can opener.)
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    (a) energy is not scarce; the historically most efficient sources (oil, coal, etc.) are;

    That seems like a big (and optimistic) premise; "theoretically" there should be plenty of energy to go around but the actual amount capturable from non-fossil fuel sources could well turn out to be pretty low, especially when compared with the windfall of millions of years of stored up solar energy we've been harvesting through the industrial revolution. If (a) is in doubt (and I imagine it must be), then I think you may want to modify your conclusions based that uncertainty.

    In those old Victorian novels you often see a young rake fall into a large inheritance and spends through it quickly on gambling and claret. You could say "well, young Farnsby is profligate now, but money isn't scarce (even if his inheritance is) and he'll make right soon enough". Or you could foresee the inevitable, and recognize that one bout of good fortune does not guarantee a happy ending.
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    This is pretty much exactly the form of the reply to Malthus that was made by Marx and Engels . It's interesting how that argument has migrated across the political spectrum.
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    Thomas Beagle writes,
    "(b) begs the question of whether it is possible to develop suitable alternatives to oil."


    If it's not we're in big, big, BIG trouble. It's concerning to me that no easy alternatives have presented themselves thus far. It seems to imply one of several bothersome explanations

    1) as you suggest it's just not feasible or damn near so.
    2) the market is doing a poor job... any time now Mr. Invisible Hand.
    3) the market is being manipulated to suppress alternatives suggesting a deep dark Bilderberg Group- like conspiracy.



    One big hope I have is for high storage capacitors that will run a car 200-300 miles a charge, charge as fast as you fill your tank and ideally are solid state long lasting and not produced with environmentally harmful products.


    http://tech.blorge.com/Structure:%20/2008/06/27...
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    It's not clear that (a) is true. Maybe for oil, but certainly not for coal. Coal is abundant, but simply because it's not liquid, it is more costly in some applications. Thus coal may be one of the "alternative" sources, along with coal liquefication.
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    I largely have issues with (b) and (e). I discuss here:

    http://economics.about.com/b/2008/08/04/are-the...

    In a nutshell - there is no guarantee that our new energy sources will be less polluting than what we use now. As well, even if our sources are less polluting per-unit-of energy, there still may be an increase in pollution due to increases in per-capity energy uses and through population growth.
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    I also didn't understand (a). Oil is more expensive than it historically has been, but it's still cheaper than alternatives; that's why the market is still using oil, and why politicians are promising billions in subsidies and tax credits to "wean us" off oil.

    We also have a record amount of proven crude reserves. So in what sense is oil more scarce than biofuels or whatever?
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    Mostly correct. a few points:

    1. A well functioning price system would price oil and it's externalities much higher than even current levels even ignoring global warming, for national security reasons. We need a gas tax or equivalent for those national security reasons.

    2. Since all available petroleum will eventually be burned by someone, it is silly to enter into any global agreements that restrict our consumption or emissions.

    2. Rapid price rises will be good in the long run. That's a function speculators are taking care of to some extent, connecting forecast future prices to spot prices. No change in gas consumption occurred in the US until prices quadrupled. We want to be on the elastic part of the demand curve to spur innovation and discourage consumption.

    3. We don't have an energy supply problem, we have an energy storage problem. That's the problem coal and oil have solved for us. We really need better batteries for electric cars.

    4. Nuclear power, sequestered coal and large solar farms are all feasible at 2x-3x current prices.

    5. Globally, wealthier economies will be cleaner and more easily able to adapt to climate changes of most varieties. Above all else, we should spend most of our efforts creating wealthy economies.

    6. Finally the argument for higher petroleum prices/taxes for national security reasons, but not for global climate reasons, needs to be articulated carefully, lest warming reverses.
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    I will tackle (b). The meaning of the phrase "a well functioning price system" is subject to debate. "Cleaner" is a relative term, and its inclusion in a formula does not make for anything approaching the solidity of a mathematical identity. Example, does a "cleaner" power grid mean pushing the development of an HIV or Cancer vaccine back 15-20 years or more? How clean will such a power seem to your average Prius driving yet AIDS ribbon wearing celebrity? Which technological advances in the short term should we sacrifice in order to reach this "clean" energy? Keep in mind that the power structures necessary to "ration" technological advances in the furtherance of a switch to "clean" energy will be top-down and bureacratic in nature, and will hence further decrease the efficiency of our capital allocation mechanisms, an you have got a reduction of our ability to progress towards technological advance, again.
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    You really need to read some Herman Daly concerning steady state economics and our current badly flawed econometrics. There's a whole field of ecological economics that Daly essentially founded that your musings here do not engage. The temptation to say "...and a pony!" is pretty high on this one.
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    Dear Will,
    The argument's problems are in (b) and (c). The problems can be well summarised in the concept of EROEI - Energy return on Energy Invested. As we move from richer sources of fuel with high EROEI, we have to spend more and more of the GDP in getting the SAME energy output that was required to keep us at the status quo. With an EROEI of 99 to 1, just one unit of energy combined with low human effort gets us 99 units of energy that can be used for powering civilization. Now if the old energy source is gone and the new one has EROEI of 9 to 1, to get those same 99 units of energy for powering your civlization, you need to invest 11 units of energy. The endgame really comes in when the EROEI starts approaching one and greater and greater levels of complexity is required to sustain the same level of consumption that industrial civilization provides. If however, you are booted once onto a >1 EROEI renewable energy source, you are set.. provided you don't reproduce...
    For much clearer expositions, Pls. see the debates on Net Energy in the Oil drum. www.theoildrum.com
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    The problem is that a) is irrelevant. The question isn't whether energy is scarce; the question is whether usable energy is scarce. It is, and always will be.

    The question then is, "how scarce?" The answer to that depends on the state of the world (how much oil is in big, easily reached pockets? how much does the sun shine?) and the state of technology.

    The state of the world is changing as we pick the low hanging fruit, e.g., drain the big oil and natural gas reservoirs. Prices go up because it's more expensive to pick the fruit that's way up. That creates incentives to develop and implement new technologies that can undersell the remaining fruit. Agreed.

    However ... New technology may make if possible to get usable energy at low costs--with costs defined broadly to include environmental costs. For example, it may be possible to genetically modify bacteria to make usable hydrocarbons from water, carbon dioxide, and sunshine. Or it may not.
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    Roger,
    Good point about usable energy. I think we can all agree that energy is abundant - it's radiating from the sun all day, every day, and it will continue so for longer than is relevant to plan for. And for electricity, I'm convinced we can rely on non-fossil fuels, many countries already do.

    The problem is liquid fuels for transportation. Can we rely on the sun for that? Yes, ethanol works just fine. Growing crops for ethanol is a very obvious sort of use of solar energy. Thus, usable energy is abundant.
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    I don't think ethanol is a good example of abundant usable energy. Growing corn doesn't just require sunlight. It also requires land and water (and fertilizer and tractors and ...). Most of the energy of the sun goes to making roots and stems and leaves and cobs, and to keeping the plant alive for 4 months. Very little makes it into the kernels. Even the little bit of ethanol we have produced so far has taken a large chunk of land.
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    Roger,
    Perfectly valid point about corn ethanol. But I never mentioned corn as the crop of choice. I hear swithchgrass, for example, has a superior yield - seems to me that the choice of corn as a source in the US has more to do with the influence of Big Corn and other political reasons. Up here in Sweden we are apparently making ethanol out of branches and tops of trees, which are not useful for making paper. So the land and tractors and what not is already out there.
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    To throw a twist if anyone is interested... why do we need growth... as defined? I've heard the argument that we need growth is because are monetary system is debt driven. Every dollar printed comes with debt attached so we need to grow the economy to pay the debt.

    This doesn't preclude development and improved standards of living. The idea is that what we call economic growth can't obviously go on for ever.

    I heard the idea floated from a Stephen Zarlenga at The Monetary Institute that instead of creating debt with new money we should use new money to buy things and build things like roads and bridges that improve productivity.
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    What we call development and improved standards of living is one form of growth.
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    What is missing is an understanding of the mathematics of growth. An absurd example, a nearby star goes supernova, we build a device that captures 1% of its energy, about 10^51 ergs (1 with 51 zeros). At our present usage this will last us about 10^27 years (1,000,000,000,000,000,000,000,000,000 years). A very long time, our energy needs are taken care of for longer then the universe is old. Oh be we wanted growth didn't we, so lets grow our energy needs by 10% per year, then the energy will last about 600 years.
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    Cheap, sweet crude helped keep inflation low during growth.

    Growth will continue, but with higher inflation.
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    Cheap, sweet crude helped keep inflation low during growth.

    Growth will continue, but with higher inflation.
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    (a) energy is not scarce; the historically most efficient sources (oil, coal, etc.) are;

    (b) a well-functioning price system will shift energy consumption to (cleaner) alternative energy sources as prices for historical extracted sources of energy rise;

    (c) the initial high price of alternative energy will temporarily slow growth, but competition and technological progress will eventually push prices below the historical trend and even asymptotically approach zero, increasing average rates of growth;

    (d) environmental quality is a global public good, but;

    (e) this is most likely to be secured as a consequence of growth — as a consequence of the technological innovation that both creates and is created by growth — together with the rising scarcity and prices of the most environmentally degrading energy sources.

    So,

    (f) there are no meaningful limits to growth from either the scarcity of energy, or from negative environmental externalities from economic production, since in the medium run, those externalities are positive.

    @muirgeo - Energy enables us to provide all the infrastructure and other resources we need.

    The price system appears to be functioning quite well. We've had a huge increase in demand from Asia, and it turns out to be difficult to increase supply, so prices go up. They also go down, as we've seen in the last month as oil went from 140+ to 120-.

    "The current senatorial debate"

    was about drilling (verboten!) and profits ("excess") not about subsidies.

    @Mark - "absolute terms"

    We know it historically, because the most developed countries are the most environmentally sensitive without exception and as we have grown richer, we have grown more sensitive. The next test of this proposition is in China. Interesting to see the effects of China's current experiment in pollution control (the Olympics). It may turn out to be a watershed for them.

    @Will - "What if a particularly sharp increase in resource scarcity overwhelms the price signal subpoint (b) assumes?...an abbreviated transition period between readily available oil and the absolute collapse of fossil fuel infrastructure would probably undermine alternative fuel development."

    Wouldn't it more likely trigger a WWII-like mobilization to move away fromm fossil fuel?

    @Alan Gunn - "Models that attempt to make predictions but which don't incorporate public-choice theory are incomplete."

    While political forces generally try to stop change, I don't think they succeed in the end, in part because of competition across jurisdictions. I.e., if we don't change, that won't stop China from changing. And vice versa.

    @Thomas Beagle - "We seem to be able to generate electricity through nuclear/wind/solar/hydro/etc but I'm not sure if that's enough to work as a replacement for the place oil takes in the global economy."

    If we keep making progress on batteries, hydrogen and other energy storage technologies, we'll be able to stop using gasoline. The non-energy uses of oil are minor in comparison to power and transport.

    @bkalafut - "with the double whammy of global warming and ocean acidification happening *now* you cannot necessarily hold that the externalities will be positive"

    His externalities are long-run. His point is that the system self-corrects, because we are not suicidal and we are progressively less ignorant and progressively more capable of making corrections.

    "in recent history environmental quality has been secured by law and not by innovation in a vacuum"

    The willingness to make such laws are part of the externalities. If we had no choice, no law would matter. The decreasing cost and increasing flexibility we have in producing wealth makes such laws practical. This includes CFCs.

    @wph - "Assume the can opener."

    If there was a multi-hundred year history of can openers appearing when needed, then the assumption would be reasonable. That's where we are with energy. Coal replaced wood. Electricity replaced whale oil. Now solar and nuclear will replace carbon. And we still have trees and whales.

    @mrsquare - '"theoretically" there should be plenty of energy to go around but the actual amount capturable from non-fossil fuel sources could well turn out to be pretty low'

    Our annual fossil fuel use is on the order of 1% of solar insolation, not to mention nuclear, particularly fusion (I guess that's the same as solar!)

    @muirgeo -"1) as you suggest it's just not feasible or damn near so."

    Most things aren't feasible if you have an easy alternative.

    "2) the market is doing a poor job... any time now Mr. Invisible Hand."

    Mr. Hand requires prices to act as the stick. For generations the price was low...That appears to be changing...

    "3) the market is being manipulated to suppress alternatives suggesting a deep dark Bilderberg Group- like conspiracy."

    Vast amounts of money are now flooding into alternative energy. See Pickens. See Khosla. See Applied Materials. Also, see response to 2).

    "One big hope I have is for high storage capacitors"

    See EEStor!

    @gecko - 'coal may be one of the "alternative" sources'

    Absolutely, unless we decide it's a bad choice for environmental reasons

    @Bob Murphy - "in what sense is oil more scarce than biofuels or whatever?"

    It isn't in the absolute sense. But every year we need a lot more energy. So far, even the rapidly increasing price hasn't delivered an increased supply. We don't exactly know why that is (it may be because of environmental issues, it may be OPEC shenanigans, it may be that the new stuff is harder to make useful, or of course, some combination.) It's starting to look like incremental gigajoules will come from one of the other sources.

    @JPC - "A well functioning price system would price oil and it's externalities much higher"

    No it wouldn't. If you want to be above the market clearing price, you have to intervene.

    "Since all available petroleum will eventually be burned by someone, it is silly to enter into any global agreements that restrict our consumption or emissions."

    Not necessarily. I bet we'll stop burning it long before we run out. Think whale oil. The are better ways to make power, once the technology and infrastructure are there.

    "Rapid price rises will be good in the long run."

    Why is that? I think a slow but predictable rise will achieve your goals with much less pain. The elastic part of the curve is where the pain is, especially for low income people.

    @Prakash - "As we move from richer sources of fuel with high EROEI, we have to spend more and more of the GDP in getting the SAME energy"

    You're assuming that technology remains constant and it doesn't. For a given source and a given technology, you're right, but those are both false assumptions. There is no reason that positive externalities can't continue without effective limit.

    @Roger Sweeny - "The question isn't whether energy is scarce; the question is whether usable energy is scarce. It is, and always will be."

    Formally, yes. But oil at $10/bbl is a heck of alot less scarce than oil at $100. It's quite possible that alernative energy will become perceived to be as cheap as the good oil days of cheap oil. Will's point is that the cheapening process is ongoing and effectively without limit.
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    Prakash raises a good point about whey subsidies are bad and taxes are good. As energy becomes more expensive, a large part of the cost of doing anything, including producing more energy, will be...energy. Therefore it's important to watch that subsidies don't incentivize negative energy production, or negative petroleum substitution, as in the case with ethanol.
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    " b) a well-functioning price system will shift energy consumption to (cleaner) alternative energy sources as prices for historical extracted sources of energy rise; "

    Unfortunately, save the subways and trolleys built in some cities, we are not set up to use alternative energy for transportation. Interstate electric trains are decades off. Were it possible to wave a magic wind and instantly create high-speed interstate rail and put an electric car in every garage, we would still find ourselves with another dilemma - how to get enough new electricity to power all those vehicles. Coal and natuiral gas will peak soon and would only be a short-term solution. Renewable energy has variable output for which we have no current way of storing it. Our only hope real hope based on current technology would be a massive and build-up of nuclear power plants.


    "(c) the initial high price of alternative energy will temporarily slow growth, but competition and technological progress will eventually push prices below the historical trend and even asymptotically approach zero, increasing average rates of growth;"

    Trucking costs, rail costs, commute costs, air fares, all on an inexhorable rise until such time as alternatives exist, will do more than slow growth.
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    I have some reservations with 4 of the 5 premises, and cannot wholeheartedly accept your conclusion, Will.

    Here are my thoughts on your position.
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    So...fossil fuels will become scarce and expensive as a result of pollution?

    You're suggesting a virtuous feedback loop, but I can't figure out how you think the feedback is happening.

    ??
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    The only way we are coming off of fossil fuels anytime soon is if an autocratic, top-down system controlling the way in which we choose energy. We have had enough growth, anyway. Time to make due with what we have got.
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    Available energy is mandatory. Wealth may equate to available energy. If you want to live in a nation that is prospering make sure that its available energy supply is abundant.
    Solve Energy to mitigate all other issues
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    Dear Mr. Wilkinson,

    Economic growth has two components, one material and one non-material. As you correctly point out in your post it is possible to create value without increasing the use of resources. This is what some people call dematerialization of the economy and what I prefer just to call increased resource productivity. This process of dematerialization is driven by technological improvements. But technological improvements have limits. As Herman E. Daly (dean of ecological economics) would say 'We can surely eat less in the food chain, but we cannot end up eating just the receipts'. This means that we can make the material component of economic growth smaller, but it will never become null.

    One shouldn't dare make economic points regarding limits to growth without taking into account physical limits and the relationship between economy and fundamental scientific laws as the laws of thermodynamics.

    The first limit to growth is the fact that the earth is a finite environment. Once I've said this you may think, well, we can recycle non renewable resources forever. Then I'll ask you to keep your faith in technological improvements at bay and do a little research on the meaning of the Second Law of Thermodynamics. If you after doing this research still believe that this universal scientific laws might not be valid after all, I ask you to search for what Albert Einstein, the scientist who turned human knowledge upside down in the last century, thought about this fundamental laws.

    Kind regards
 

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