The only thing we can be sure of about the future is that it will be absolutely fantastic. So if what I say now seems to you to be very reasonable, then I have failed completely. Only if what I tell you appears absolutely unbelievable, have we any chance of visualizing the future as it really will happen.

- Arthur C. Clarke (h/t Brin)

Wednesday, January 5, 2011

Krugman: Growth Possible in a Finite World

Krugman believes commodity prices will rise inexorably as the world develops. But somehow that is okay.
So what are the implications of the recent rise in commodity prices? It is, as I said, a sign that we’re living in a finite world, one in which resource constraints are becoming increasingly binding. This won’t bring an end to economic growth, let alone a descent into Mad Max-style collapse. It will require that we gradually change the way we live, adapting our economy and our lifestyles to the reality of more expensive resources.

But that’s for the future. Right now, rising commodity prices are basically the result of global recovery. They have no bearing, one way or another, on U.S. monetary policy. For this is a global story; at a fundamental level, it’s not about us.
I wish I believed this but I can't convince myself. Endless growth at a more than infinitesimal rate R on a finite planet implies endless decline in impacts per unit of wealth at a rate 1/R 1/(1+R), and an asymptote where ultimately any economic activity has infinitesimal impact. Exactly what "wealth" means under the circumstances is not clear.

And the problem isn't just academic. For the entire 9 billion people to have a ceiling below what two generations of growth in the west implies yields a fifty-fold decline in impact per unit wealth in the same period. (*)

I wonder what economists are thinking. Krugman is a smart man and a decent one, but how he manages to square this circle completely escapes me.

I think we can live happily (and pretty much capitalistically if that means that much to you) ever after if we lose the idea of growth. We don't need to lose capitalism to reach sustainability. But it looks to me more and more like we need to lose economic theory as it exists.

(*) Update: and even that assumes that the current impacts are sustainable!

33 comments:

rustneversleeps said...

It's more cumbersome... but it "implies endless decline in impacts per unit of wealth at a rate 1-(1/(1+R))", no?

A bitch, nonetheless! ;)

I came into the post aware of your point and I still got a little "lost"... An example maybe worth a thousand equations... but I'm watching the hockey again!

manuel "moe" g said...

Krugman is a helpful advocate for old-fashioned Keynesian money printing to be applied to the terrible problem of high unemployment (I think the modern Republican policy of ignoring high unemployment is madness), but I am sorry to admit that he is not afraid to use Sophistry for the short-term gain of the Democrats, which may be (read: *IS*) in opposition to a moral commitment to the welfare of future generations.

Your analysis is correct. Unless the whole world economy moves into its parents' basement, plays World of Warcraft next to a bucket and a dirty cot, and virtual gold pieces becomes the basis of the whole world economy, and new gold can be created by flipping a few bits - unless that, growth must hit a limit in a finite world.

There currently is a terrific disconnect, in relative terms, between the yield rate of short term borrowing and multi-decade borrowing, so speaking of a low inflation rate is silly. The extra-ordinary actions of the governments is pushing short term borrowing rates lower, and multi-decade borrowing rates higher, when, ideally and logically, the two should move in concert. If you or your loved ones are planning on living in the future 30 years hence, you may have a problem, because you have to earn in the present to pay for the future.

For some reason, Wolfram Alpha is less helpful than the US Treasury:

http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

Tobis: > But it looks to me more and more like we need to lose economic theory as it exists.

Yeah, the tools of current economic theory are too unwieldy for finite resource allocation where an action, like burning fossil fuels, may have very long term consequences. Too difficult to account for externalities of a transaction that has a bearing on a moral commitment to the welfare of future generations.

Most sadly, it is less about the deficiencies of the tools, and more about the deficiencies of the moral motivation. We merrily use these feeble tools because our moral scope is feeble too.

Tom Curtis said...

Infinite growth in wealth with finite environmental impact is at least theoretically achievable, so long as we stabilize the population. Supose, for example, the physicists finally came through with comercial (at current energy costs) fusion power. We would then have an energy source with effectively unlimited fuel supplies, and whose environmental impact is limited to waste heat.


Given this, water resource issues reduce to a question of transport in that desalination can supply all water needs with sufficient power. Mineral resources can be made almost infinite by recycling; and requirements for minerals reduced by the use of advanced ceramics and plastics. Even food requirements can be met, at need by algal vats, or intensive fish farming in artificial lights; not to mention intensive hydroponics with artificial lights. Space is not a problem if we move underground.

The current barrier to moving to this utupion (or distopian) vision is that current energy sources are either too expensive, or too harmful to the environment. Further, even renewable energy sources, if expanded sufficiently would be harmful to the environment, with the exception of geothermal energy, which has a limited economic supply.

The problem is that commercial fusion power is by current estimates 40 years away; a 10 year advance on the estimates when I was born 50 years ago. It is foolish to expect technical advances in fusion power to save us in this century. Therefore, contra Krugman, we need to move towards a sustainable model of economic development in the short term. And we need to move rapidly away from fossil fuels as a primary energy source.

EliRabett said...

Population will decline. There are two cases

1. We do it smart, take care of species extinction and carbon contamination and work to raise the living standards of the poorest so they are secure in their old age and don't need large families for economic reasons, in which case everywhere becomes France with sub-replacement birth rates.

2. We do it stupid and fall off the cliff.

Michael Tobis said...
This comment has been removed by the author.
Michael Tobis said...

Rust, OK, fair enough.

Tom said...

Most farming is done at a level equivalen t to pre qith centurytechnology. Just one example of how many imagined resource constraints are jus that.

There are limits. We are not close to them.

Hank Roberts said...

> There are limits. We are not
> close to them.
-- Wile E. Coyote
http://agonist.org/ian_welsh/20071105/the_wile_e_coyote_economy

Alas, because in hindsight, it would have been so much easier to stop while still approaching the limits.

http://www.google.com/search?q="shifting+baselines"

http://www.greatchange.org/images/catton-3.gif

"... the past shown in Panel D more nearly accords with ecological history that do the pasts shown in Panels A, B, or C. The future hypothesized by Herman Kahn's think-tank group is dangerously optimistic because it is based on the least realistic past. But the pasts shown in Panels B and C are also less realistic than the past shown in Panel D. The futures shown in Panels B and C are therefore also probably somewhat "optimistic" —although it seems necessary to enclose the word in quotation marks, because even the Panel B future seems dismal, and the Panel C future seems disastrous.
....
Our best bet is to act as if we believed we have already overshot, and do our best to ensure that the inevitable crash consists as little as possible of outright die-off of Homo Sapiens. Instead, it should consist as far as possible of the chosen abandonment of those seductive values characteristic of Homo Colossus. Indeed, renunciation of such values may be the main alternative to renewed indulgence in cruel genocide. If crash should prove to be avoidable after all, a global strategy of trying to moderate expected crash is the strategy most likely to avert it."

—Overshoot: The Ecological Basis for Revolutionary Change; Wiilliam R. Catton, Jr.; pg. 244-54,266
http://www.greatchange.org/footnotes-overshoot-graphs.html

milan said...

I guess some continuous economic growth is possible in a finite world by technological means. For example, the economy has grown due to the advent of the internet. Facebook is worth more than 10 billion dollar. I don't think it will be much, but I believe there is room for some growth in a finite world.

Marion Diabolito said...

Capitalism the ideology must go. As for "what someone can call capitalism", fine. It reminds me of what I used to say about people calling me a "socialist" - I'm not for everything anyone's called socialist, but I *am* for everything the Republicans, Libertarians and Birchers call "socialist," because it seems to be a synonym for sanity and decency.

ozhamlet said...

The folks at http://steadystate.org/ have given this problem some thought.

EliRabett said...

You are better off with an ipod than a phonograph at the same price. Living standards and income are not equivalent

Michael Tobis said...

Improvements remain possible, but what is being measured really?

Ultimately you can eat neither ipods nor phonographs. Or if you can figure out how to cook them, well, THAT would be real progress. Of course, in that case you'd be better off with a phonograph.

Neven said...

Improvements remain possible, but what is being measured really?

Exactly. Great to see that you are not ignoring this thing, mt. I'm trying to get Keith Kloor and Joe Romm on board, but I haven't been able to convince them yet.

When it comes to that I fully agree with manuel "moe" g: it's all hopeless. But I can't help myself and think: 'what if it weren't hopeless, what could be done, and how?' Might as well hope that my psychological make-up makes me tend to believe the gloom and doom, and that things aren't as bad as they seem. Thank God I have a little denialist in me that at least lets me enjoy the intellectual hypothesizing.

Neven said...

Speaking of which: you all know how denialists always accuse AGW of being a religion with scientists as the high priests keeping the faith pure. I had to think about that when I read this excellent short piece yesterday:

Economics is a bizarre field-filled with equally bizarre animals. It is surely the only academic discipline that has an orthodoxy so strongly maintained that it is necessary to sign up to the catechism of the superiority of markets and the perfection of competition before you are allowed to advance very far within it.

Promotion is determined through publication in a range of journals all of which are strongly neoclassical in orientation. When Hazel Henderson titled a chapter in her 1978 book ‘Three hundred years of snake oil: defrocking the economics priesthood' she was merely stating in florid terms the widely held view amongst economists, as opposed to the neoclassical brotherhood, that the discipline is more akin to a faith than a science.

It is claimed that economists tend to disagree and Ronald Reagan was not the first US President to call for a one-armed economist so that he could not advise him ‘on the one hand this, but on the other hand that'. For a similar reason corporate and political bodies frequently appoint a Chief Economist so that they do not have to engage in debate but rather receive scientifically based instruction. But economics is a social science; these are complex issues that relate to behaviour and power. Conflict, debate and participation are democratically necessary.


The battles needs to be taken to the universities, but this will only happen when enough people start questioning the dogma of infinite growth. I don't know the solutions (delusions), but I know the dogma has got to go.

Tom said...

What truly amazes me is that you folks sound like you really believe this stuff.

Jon said...

I agree Dr. Krugman is too sanguine, my thoughts are far from fully formed in this area and I realise the following was offered in jest - "Unless the whole world economy moves into its parents' basement, plays World of Warcraft next to a bucket and a dirty cot, and virtual gold pieces becomes the basis of the whole world economy, and new gold can be created by flipping a few bits - unless that, growth must hit a limit in a finite world." - but I can't help thinking that there actually is a great deal of potential for virtualising the world economy and otherwise making it less resource intensive while perhaps preserving nominal economic growth. Dump on WoW all you like but virtual experiences are only, barring civilisational collapse, going to get better and, as resource constraints bite, will presumably end up substituting for a lot of yachts, sports cars, trips to exotic locations, etc. Developed economies are already vastly more service-based than used to be the case. I don't have much faith in economists and politicians to manage a transition to a largely, once basic needs are taken care of, dematerialised economy successfully, let alone while continuing nominal growth, but I'm not so sure it's impossible as many other commenters seem to be.

Michael Tobis said...

Which leads directly to the Matrix nightmare world, doesn't it, with the maximum number of people plugged into maximally convincing virtual reality machines...?

Again, the question remains. What exactly is growing? And why?

manuel "moe" g said...

MT: > Matrix nightmare world

Worse than that. It is voluntary.

Tom said...

Sounds scary, until you realize that in the developed world people are spending huge chunks of their lives in front of various screens already without showing any signs of needing Neo and Trinity to bail them out. Probably could use both for leading Pilates classes...

Nick Palmer said...

Unending economic growth is not possible in a finite world but the ecological economists, such as Herman Daly, point out that continuing economic development is. It's an updated version of Buckminster Fuller's "doing-more-with-lessing".

coby said...

Michael, in your search for reality based economists, have you come across Manfred Max-Neef before?

Growth is a quantitative accumulation. Development is the liberation of creative possibilities. Every living system in nature grows up to a certain point and stops growing. You are not growing anymore, nor he nor me. But we continue developing ourselves. Otherwise we wouldn’t be dialoguing here now. So development has no limits. Growth has limits. And that is a very big thing, you know, that economists and politicians don’t understand. They are obsessed with the fetish of economic growth.

And I am working, several decades. Many studies have been done. I’m the author of a famous hypothesis, the threshold hypothesis, which says that in every society there is a period in which economic growth, conventionally understood or no, brings about an improvement of the quality of life. But only up to a point, the threshold point, beyond which, if there is more growth, quality of life begins to decline. And that is the situation in which we are now.


http://www.democracynow.org/2010/11/26/chilean_economist_manfred_max_neef_on

AMY GOODMAN: And if you’re teaching young economists, the principles you would teach them, what they’d be?

MANFRED MAX-NEEF: The principles, you know, of an economics which should be are based in five postulates and one fundamental value principle.

One, the economy is to serve the people and not the people to serve the economy.

Two, development is about people and not about objects.

Three, growth is not the same as development, and development does not necessarily require growth.

Four, no economy is possible in the absence of ecosystem services.

Five, the economy is a subsystem of a larger finite system, the biosphere, hence permanent growth is impossible.

And the fundamental value to sustain a new economy should be that no economic interest, under no circumstance, can be above the reverence of life.


http://www.democracynow.org/2010/9/22/chilean_economist_manfred_max_neef_us

coby said...

Michael, in your search for reality based economists, have you come across Manfred Max-Neef before?

Growth is a quantitative accumulation. Development is the liberation of creative possibilities. Every living system in nature grows up to a certain point and stops growing. You are not growing anymore, nor he nor me. But we continue developing ourselves. Otherwise we wouldn’t be dialoguing here now. So development has no limits. Growth has limits. And that is a very big thing, you know, that economists and politicians don’t understand. They are obsessed with the fetish of economic growth.

And I am working, several decades. Many studies have been done. I’m the author of a famous hypothesis, the threshold hypothesis, which says that in every society there is a period in which economic growth, conventionally understood or no, brings about an improvement of the quality of life. But only up to a point, the threshold point, beyond which, if there is more growth, quality of life begins to decline. And that is the situation in which we are now.


http://www.democracynow.org/2010/11/26/chilean_economist_manfred_max_neef_on

AMY GOODMAN: And if you’re teaching young economists, the principles you would teach them, what they’d be?

MANFRED MAX-NEEF: The principles, you know, of an economics which should be are based in five postulates and one fundamental value principle.

One, the economy is to serve the people and not the people to serve the economy.

Two, development is about people and not about objects.

Three, growth is not the same as development, and development does not necessarily require growth.

Four, no economy is possible in the absence of ecosystem services.

Five, the economy is a subsystem of a larger finite system, the biosphere, hence permanent growth is impossible.

And the fundamental value to sustain a new economy should be that no economic interest, under no circumstance, can be above the reverence of life.


http://www.democracynow.org/2010/9/22/chilean_economist_manfred_max_neef_us

EliRabett said...

Sorry MT, I don't get your point, food, shelter, transportation and health can all make better use of physical resources while improving via efficiency and substitution.

Nick Palmer said...

Eli wrote:

food, shelter, transportation and health can all make better use of physical resources while improving via efficiency and substitution.

That sounds very like the fundamental delusion of classical economics which conveniently ignores the "externalities" involved in "efficiency and substitution" which they do not consider in their analyses.

What they do is like magical thinking - it presupposes that there will always be some new resource to substitute for one which is no longer economically obtainable and that efficiencies are capable of infinite expansion. They wave their hands and the law of diminishing returns goes away!

Eräs Henkilö said...

I haven't read all, but isn't Krugman a pretty fundamental Keynesian?

I understand the sensibility of government building stuff that has to be built anyway, and timing that building during economic slumps. It's cheaper that way and it's better for the workers.
This can be seen as Keynesian in some sense I think.


Then there's the burying treasure into mines, filling them with trash and letting miners mine it and calling it economy.

Which I think is also Keynesian. And which I don't think makes sense.

Probably I've misunderstood something (even some terms) but in general the economics people I know (I know only really such who have to have a technical background as well) think of it as a fairly limited discipline...

ie that it's not magic. Using your brain usually thriumphs some wrongly used rules of thumb.

Neven said...

There's an interesting piece on CASSE's Daly News blog by Eric Zencey:

"And that’s why the standard view won’t succeed in fixing the problem. The spasm of debt repudiation with which the crisis began — the collapse of the sub-prime lending market — is what happens when an infinite-growth economy runs into the limits of a finite world.

That insight comes from the reference frame suggested by Frederick Soddy, as elaborated by Nicholas Georgescu-Roegen, Herman Daly, and others. Soddy offered a vision of economics as rooted in physics — the laws of thermodynamics, in particular. An economy is often likened to a machine, though few economists follow the parallel to its logical conclusion: like any machine the economy must draw energy from outside itself. The first and second laws of thermodynamics forbid perpetual motion, schemes in which machines create energy out of nothing or recycle it forever. Soddy criticized the prevailing belief in the economy as a perpetual motion machine, capable of generating infinite wealth."

David B. Benson said...

What is growing?

Entropy.

Michael Tobis said...

When green economists talk about "entropy" I can never decide if they are being poetic or serious. If they are trying to be thermodynamically rigorous, they are pretty much wrong. There is a fair amount of low-entropy energy left in the sun; on time scales short compared to the lifetime of the sun, say the next billion years or so, we really needn't worry about that.

I find this odd obsession with thermodynamics even among the best of the post-growth economists. I really don't think it is useful.

John Mashey said...

People might borrow a copy of Ayres & Warr, but maybe start with this Ayres talk. See the last page, where US GDP curves are characterized by energy efficiency.

Ayres is a physicist-turned=-economsit.

A big chunk of GDP growth (say ~60%) is often called in neoclassical economics:

- Solow residual
- Total Factor Productivity
- Technological progress
nccne I have a hard time finding real metrics for those, I like Ayres & Warr better. Analyses of economies over the last century says a good approximation is actually something you can measure:

work = efficiency * energy used

This makes sense on a micro-scale:
- a farmer with no draught animals is poor, as the only energy = manual labor.
- a farmer with a few horses or oxen is better off [as per the Amish]
- a farmer with a tractor or a 300HP combine is probably OK, and can cultivate a lot more land.

Of course, if energy-used goes down, efficiency better go up to achieve the same physical work. The curves on the last page of that presentation are not pleasant.

BTW, if A+W are right, then a big chunk of the GDP growth over the last century ~fossil fuel * (some) better efficiency. And if so, this idea that the next century's per capita growth is similar ... is fantasy. That means forget the idea that people are 6-15X richer in 2100AD.

dhogaza said...

"Then there's the burying treasure into mines, filling them with trash and letting miners mine it and calling it economy.

Which I think is also Keynesian."

I ain't takin' your word for that. Please provide some reference from Keynesian economics to support that.

Unless you're talking about spending money on military hardware that never sees the light of day or which can only be used to fight the last war, not the next, which doesn't seem to result from prue Keynesian economics but for other reasons ...

Martin Vermeer said...

Yep, it is well known that GDP is a pretty poor measure of human well-being, or even prosperity. But that is a separate issue from growth as such.

To illustrate the point I am trying to make from a different angle, note that even completely stopping growth will on its own not be enough to stop impacts. If we keep on burning fossil fuels, impacts will continue to pile up. Any solution will have to be a package, something also the MIT Limits to Growth report arrived at already in the 1970s.

"Decarbonization". It requires a lot of new technology development and investment in infrastructure, and will likely create new employment. Is it "growth"? I would say, by common-sense standards, yes. Will it contribute to the GDP? Short term, pretty sure the contribution will be negative. But doesn't that say more about our instruments for measuring "growth" than about the goodness/badness of growth itself?

> endless decline in impacts per unit > of wealth at a rate [formula]

Note that this is what you get when you directly impose a fixed ceiling on impacts, e.g., by cap & trade. The interesting question to ask is if positive growth remains possible if you do this. My understanding (and apparently that of IPCC WG3) is that it does.

Eräs Henkilö said...

dhogaza:

http://quotes.liberty-tree.ca/quote_blog/John.Maynard.Keynes.Quote.657C

"If the Treasury were to fill old bottles with bank-notes, bury them at suitable depths in disused coal-mines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of repercussions, the real income of the community, and its capital wealth, would probably become a good deal greater than it actually is."