Limits to Economic Growth

Why Indefinite Economic Growth Is Not Possible

A follow up to the influential 1972 Limits to Growth study has recently been published in Nature Physics.  It's a comment article by Thomas Murphy called Limits to Economic Growth.  The original Limits to Growth study modelled a number of variables including population, resource use, and technological advancement, but did not specifically look at metrics of economic growth such as GDP (or the global equivalent GWP).  The authors looked at a number of scenarios and found that almost all led to collapse this century and that none led to continued growth.  The Murphy article fills in the gap in Limits to Growth by showing that their conclusions apply to economic growth too.

The article starts with some physics to demonstrate what should be obvious: that energy consumption cannot continue to grow at a fixed rate.  It uses a quantitative approach that allows us to set upper bounds on how long we can carry on growing at the current rate.  The last 100 years has seen growth in energy consumption of 2.3% per year or, alternatively, a tenfold increase per century.  This is partly due to population increase, but is mostly the result of increased per-capita consumption.  It is clear that non-renewable energy sources will eventually be consumed even without growth.  But Murphy goes further and shows that with growth even renewable sources will eventually run out.  In fact, at 2.3%, in just 400 years all solar energy incident to Earth will be consumed by human activities.  1000 years later we'd be using all the solar energy emitted by the Sun in any direction.  1000 years after that, all the stellar energy produced by the Milky Way would be consumed.  The latter is a physical impossibility given that the Milky Way is more than 1000 light years across.

 

Thus, growth (in energy consumption) of 2.3% for a period equal to the age of Western Civilization (about 2500 years) is incompatible with the laws of relativity!  But we can lower that upper bound considerably if we're prepared to appeal to weaker constraints such as liveable climate. A simple application of the Stefan-Boltzmann law shows that in just 400 years the waste heat generated by our increasing energy consumption would result in a surface temperature high enough to boil the oceans.  And this is a model that ignores greenhouse gases....

The obvious retort is that products and services can be decoupled from energy usage through ever improving efficiency.  However, Murphy shows that economic growth produced by energy efficiency can only continue for a limited period.  He gives the service of lighting as an example.  Over the last 500 years our technology has progressed from candles to LEDs, and efficiency has increased 1000-fold in the process.  However, LEDs are approximately 30% efficient and so only a 3-fold efficiency improvement remains.

From Limits To Economic Growth (Murphy, 2022)

 

Many economists argue that indefinite economic growth is nonetheless possible, through a complete decoupling between GWP and physical goods and services.  For example, I could get better at writing poetry every year and my earnings could continue to grow through the sale of this non-physical service.  Murphy asks what would happen if the value of physical goods and services (which all require energy to produce) stops growing whilst the the value of non-physical goods continues to grow at, say, 2.3% per year.  The answer is that over time physical goods and services would become essentially free.  Since there is a finite amount of physical goods and services there would be no way to stop someone from buying them all up and then raising the price.  Our demand for at least some of these is inflexible (e.g. food) and so they would still sell at the higher price.  So, by contradiction, we have shown that there is some lower bound for the fraction of GWP that is in physical goods and services.  And since this part of GWP cannot continue to grow indefinitely, neither can the rest.

Why is this important?  Murphy gives a couple of reasons.  Firstly, it has long been argued that the enormous disparity in wealth is not a problem precisely because of growth.  Rather than redistribute the pie, we are told, just wait a bit and the pie will always grow.  Unfortunately this argument is based on a fallacy.  The pie cannot continue to grow forever and, in fact, it has to stop growing fairly soon.  The second reason relates to the stability of our economic system.  Every part of it expects and depends on growth, from pension funds to government borrowing.   Absent a widespread faith in future growth and a financial crash becomes inevitable.  Limits to Economic Growth shows that the urgent challenge we face is not to continue to seek more growth, but to restructure our economic system so that it is capable of steady state operation.