Thursday, November 19, 2009

The strange magic of economic growth

What is economic growth? Basically, rising GDP, which means producing an increasing amount of goods and services. But I believe that answering this question properly demands of us that we look at growth generally.

"Out there in the real world" growth appears to be energy exchange. For example, a system has some mechanism (such as eating and digestion) for taking in energy, then converting this energy into growth and/or work, expels waste, and does this for as long as it stays cohesive. Entropy takes its toll, of course, and the system eventually collapses. Another point to consider is that the amount of energy in the universe has not changed one bit since the big bang. Therefore, growth is ongoing exchange of a finite amount of energy circularly between different energy-cycling systems. Growth is part of a cycle requiring "borrowing" energy from "out there", then returning it via waste and work.

Economic growth must surely obey these laws. Economics cannot entertain a definition of never ending growth without defying the laws of physics -- for every action there is an equal and opposite reaction. Economics must take the universe into account, must -- more prosaically -- take the ecosystem which supports all economic activity into account. So, if we hear politicians and economists claiming credit for some growth miracle via the correct handling of the economy, we are obliged to ask at what cost this growth came. Whence the energy that fuelled it? What handles the waste? Where the cyclicality? When will the entropy come, and how?

To my mind, what we have been witnessing these last millennia is humanity's improving ability to do more with less, as Buckminster Fuller used to say. There are no economic miracles, only miracles of human ingenuity, or, to put it another way; technology has been increasing our productive efficiency. Without technology there can be no economic miracles. Where would we be without the plough, or without the domestication of the horse? What use wisely timed changes in the base rate, what function the injection or retraction of money into and out of the economy, how relevant skilled tweaking of the tax code without technology delivering improving efficiencies? Surely economic "growth" is nothing more than the benefits of technological developments distributed (to whatever extent) throughout society! There can be no such thing as perpetual economic growth, there can only be the distributed benefits of technology, be it a plough or a super computer.

Also worth remembering is that the success afforded us by our ingenuity, resulting in our numbers on this planet now nudging 7 billion, has come at the cost of other energy exchange systems, such as rain forests. This is neither a good nor a bad thing until our impact on the ecosystem brings to an ugly halt our ability to sustain civilisation. So, while I believe the planet we were so fortunately born on is abundant in all that we need to live in high quality, we need, at 7 billion and rising, to be very aware of our cumulative effect on it. This awareness should not only include what we consume and how sustainable that consumption is, but also what we bring into existence (I'm thinking of chemicals etc), which the planet is then forced to eat and digest for the first time in its long life. When we create a thing, we are responsible for it, but can only ask the planet to process it one way or the other. Wherever we throw things away, we are doing so on the planet. Are our economic models taking sufficient account of this most obvious truth? Or is their wierd understanding of growth in fact a threat to civilisation?

Should we be learning a new and healthier way of understanding growth? I believe so. Should we strain every sinew to develop a socioeconomic system that does not depend upon growth? Abso-bloody-lutely.

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