Two months ago my post discussed one of the major failings of economic analysis and media coverage in the United States: The reverential myth of the powerful leader. By itself, that tendency has created dangerous misinterpretations of economic and regulatory trends and, therefore, badly skewed policy prescriptions for the country. Among other things, it has inspired laws and regulations that effectively limit increases in average wages and benefits, corporate board structures that reinforce the power and income of leading CEOs, and tax policies that favor the most wealthy among us. Unfortunately, there is another common set of assumptions that also distorts our analytical processes and reduces our ability to plan for a sustainable future. This is the doctrine of perpetual growth, in which we assume that it is not only good, but necessary, to expand the economy by a certain percentage every year, and that the larger that percentage is, the better.
In the life of our economy there are arguably some reasons why growth could be useful. First, of course, is the fact that the country’s population continues to grow, which means that the gross domestic product (GDP) must increase at least at the same rate just to maintain the same share of resources to each individual. The expectation, in fact, has always been that each succeeding generation would be better off than their parents, which implies not just stasis, but a GDP growth rate that is adequate to provide an increased share of resources for each individual. Never mind that that expectation hasn’t been met for most of the population since the mid 1970s, when average income stopped growing despite continuing increases in GDP and productivity. The ideal of generational improvement may have collapsed, but the population argument is still used to justify economic growth.
The population argument is also part of a curiously circular system. We have, on the one hand, the ubiquitous assumption that in order to keep up with population growth we need to constantly expand our economy. At the same time, there are widespread expressions of concern that in most developed countries the “fertility rate” has dropped below the “replacement rate” that we assume is needed. In short, as an article in The Economist (August 22, 2015) noted, “The net effect is a ‘perfect demographic storm’ that will imperil economic growth.” So what is it? Do we need to increase the population to keep the economy growing, or do we need to grow the economy to compensate for any increases in population?
Admittedly, there are some valid concerns in that national economies must manage to support aging populations with fewer new births to create active workers to pay taxes, but such analyses generally fail to note two current statistics: In much of Europe the unemployment rate among young people is often above ten percent, and in the United States the labor participation rate, the percentage of working-age individuals actually in the labor market, has declined to just above 60 percent. It seems as if there might be a cushion of available workers who could take the place of the missing births even if developed countries continue to discourage immigration. If not, with our current level of income inequality we could easily support our less-affluent aging populations through progressive tax policies.
A different factor pushing for GDP growth is the demand by investors for increasingly higher profits and dividends. One way for profits to grow is for corporations to grow. They can do this in a zero-sum economy by taking market share from their competitors, but it is easier if the overall market pool increases. This is one expectation that hasn’t failed in the past five decades. Whatever growth there has been in productivity and GDP has gone almost entirely into profits and dividends, not into wages. In fact, for the vast majority of people in the United States none of the GDP growth in the past five decades has “trickled down” to them, and any future improvements in their personal economic situation may be expected to come only through tax and regulatory policy, not through greater GDP growth.
Assuming, therefore, that a constantly growing GDP may be neither necessary nor meaningful, why can’t we simply assume that it is a positive goal that is largely harmless? Why can’t the economy of the United States continue to grow at three percent every year simply because we would like it to?
The answer comes, in large part, from resource limits. We live in a finite world. The warnings are all around us. I know that the Malthusians have been predicting overpopulation doom for more than 200 years, and somehow we have, thus far, managed to avoid most of the disasters they predicted, largely through advances in technology. They were correct to the degree that we have had serious famines, but these have been relatively limited in impact, confined to specific geographic regions and populations. If it seems like I’m minimizing this problem, as we often do, my apologies to the chronic sufferers in places such as Bangladesh and northern Africa.
Neither am I talking about the repeated predictions about coming shortages in fossil energy supplies—oil and natural gas and coal. We have, again, managed to discover more and more untapped reserves, often through the application of new extraction techniques like fracking. The fact is, the problem with carbon-source energy is not that it threatens to become scarce, but that it threatens to continue being all too abundant and available for the usual applications. That threat now comes from the relationship between fossil fuel use and the true shortages that we do need to worry about as a result of continued growth. The true limits involve, simply, the vital three resources of air, water, and land. Specifically, clean air, potable water, and unpolluted land.
Begin by going back to the Malthusian argument. One of the ways we avoided widespread famine was by redistributing clean water. Now, of course, that resource is reaching limits in many places, and cities like Cape Town and Phoenix are reporting svere shortages. We also intensified the use of fossil resources in food production. Prior to 1940 we grew 6 units of agricultural output energy using only about 1 unit of fossil energy inputs. Today, following generalized soil depletion and the increased use of fertilizers, insecticides, herbicides, and mechanized processing, it takes as much as 10 units of fossil-derived energy to produce one unit of output. Meat production has been centralized in giant feed lots and animal warehouses also requiring significant increases in artificial nutrients and antibiotics. Both plant and meat production use large amounts of water and create massive amounts of waste liquids that are allowed to run off or improperly contained, adding agrochemicals to surface water and ground water across entire watersheds and creating large dead zones in near-coastal waters like the Gulf of Mexico.
Mining, extraction of the minerals used to satisfy our growth in consumer goods, continues to create ever-larger holes in the ground adjacent to even larger piles of tailings contaminated with the chemicals used to separate the small percentages of the useful elements we need. Subsequent industrial processing of these and other inputs adds yet more pollutants to local water and the atmosphere. Packaging, transport, and disposal of replaced items add resource costs and waste materials to the expanded amounts of consumer goods, an often unnecessary impulse fueled by demand created by advertising as producers try to induce more growth in saturated markets. In the name of growth we are increasingly trashing our land, water, and air, in many locations and in many ways that may be irreversible.
Many of the impacts of our growth are not localized. The increased presence of plastic wastes in the oceans attests to that. But the ultimate ubiquitous impact of human activity is the collection of phenomena known either as climate change or global warming. Greenhouse gases are the ultimate universal pollutant with the ultimate destructive force. Every one of the processes listed above, to include the manufacture of “green” devices used to produce and distribute solar and wind alternatives to the burning of fossil fuels, involves the release of one or several greenhouse gases.
We can, to some degree, substitute processes that use fewer scarce resources and that release fewer pollutants. But the more we grow, either in population or in economic activity, the more shortages and waste materials we will create. From the point of view of our finite earth, continued growth of any kind is not sustainable.