Sustained Increment On A Finite Planet

In recent years, it has been increasingly pop to brand statements along the line that exponential* economical growth cannot forever inwards a finite planet. (One of the to a greater extent than pop examples of this declaration was the essay The Undercover Economist Strikes Back, which I previously reviewed. My analysis is similar to his, although I seem to survive to a greater extent than pessimistic inwards the long term. One could summarise the declaration inwards a way that would survive really non-controversial alongside economists: gross domestic product growth - which is what most economists are referring to when they bring upward to "growth" - is non the same thing every bit "resource usage growth". (The nautical chart below shows how existent gross domestic product growth inwards the USA has decoupled from the number of miles driven every bit ane instance of this.) Physicists in addition to crude engineers are gratis to define "growth" soundless they want, but it is foreign that they are lecturing economists on how to exercise economical technical jargon. Most economists would non brand arguments that physicists are using technical terms (such every bit "energy") incorrectly.

H5N1 Minimal Peak Oil Scenario

There is a neat bargain of argument only about the notion of "Peak Oil", partly because also much attending is paid to the concept of the dot of maximum production (the peak). I bring never attempted to brand unloose energy production forecasts, but I followed the literature because unloose energy prices are an of import constituent of inflation breakeven forecasting. Unfortunately, the argument in addition to hyperbole makes it harder to utter over the dependent area inwards technocratic circles. I volition instead focus on a reasonable baseline scenario for the developed countries, although I am non concerned most exact details. I am to a greater extent than interested inwards roofing the theoretical interrogation whether "sustained" growth is possible nether a superlative oil scenario.

I desire to emphasise that my scenario hither is for a horizon of 30-50 years, which is a far longer horizon than markets tin bargain with. I utter over a to a greater extent than pessimistic long run scenario (100 years?) below.

• The appointment of superlative production does non actually matter. I bring glanced at some recent mainstream unloose energy production forecasts, in addition to the production of "liquid petroleum" (which includes conventional in addition to unconventional oil) is expected to drib dead along to like shooting fish in a barrel rising for at to the lowest degree a decade. (Since the unconventional oil production requires unloose energy inputs, some of this represents a conversion of ane type of an unloose energy to convenient liquid form. The Albertan Tar Sands is an instance of unconventional oil.) After the peak, production volition like shooting fish in a barrel pass upward (as oil fields move downward the dorsum side of a roughly bell-shaped production curve). But from the dot of sentiment of developed countries, whatever continued growth inwards production only matters from the dot of sentiment of carbon dioxide emissions - the amount of oil that volition survive available to the developed public volition like shooting fish in a barrel decline. Emerging markets, inwards exceptional oil producers, volition bid away oil supply.
• I assume that at that spot are no major oil discoveries or technological "silver bullets" (for example, thorium reactors) which tin ramp upward the provide of energy. I bring express justification for this assumption, but I demand it inwards monastic say for the residuum of the article to brand sense.
• Conversely, at that spot are no catastrophes that striking society, from whatever number of possible directions (for example, global warming). Modern societies are remarkably resilient, so this is non totally unreasonable.
• Absolutely disastrous policy, such every bit nosotros regard inwards the euro expanse at present, are non sustained over the scenario period. This is perchance only a hope, but at that spot is a for certain amount of Darwinian choice inwards the long term for failed policies.
• Energy cost spikes volition only crusade temporary disruptions that are eventually absorbed yesteryear automatic stabilisers.
• Price signals inside an economic scheme volition eventually  Pb to something resembling "optimising" demeanour (that is, motility away from energy-intensive products).
• These cost signals volition eventually Pb to adaptive policy changes every bit well. My summary of the province of affairs is that naught volition survive done until it needs to survive done.
  (For what it is worth, my recommended policy would survive to enact an "Energy Added Tax" which punishes unloose energy consumption, which also catches imported goods. It should commencement small, in addition to ramp upward along a pre-determined schedule, to give people fourth dimension to adapt.)
• "Peak Food" matters, in addition to is fundamentally to a greater extent than of import than Peak Energy (for reasons I utter over below). Peak unloose energy poses problems to the industrial farming model, in addition to so the issues are related. But the constraints on fresh water, fertiliser in addition to other inputs could seize with teeth fifty-fifty before unloose energy limits hits agricultural production. I assume that difficult limits volition non survive reached inside the forecast horizon, but nutrient production volition human activeness every bit a drag on growth.
• There is a lot of activity inwards modern economies that is non of telephone substitution importance. Many energy-intensive activities tin survive dropped without the underlying graphic symbol of guild changing. (As a pocket-size example, consumption of fruit transported yesteryear air could survive replaced with to a greater extent than traditional sources, such every bit eating canned fruit.)
• Demographic information indicates that populations inwards the developed public are either like shooting fish in a barrel declining or bring a pocket-size positive growth charge per unit of measurement due to immigration. This reduces the trace per unit of measurement area on resources constraints.

The province of affairs inwards the developing economies is somewhat different. I practise non follow those economies plenty to survive confident inwards discussing them, but my bias is non to survive also optimistic most countries that demand to import nutrient in addition to energy. The developed countries, yesteryear contrast, bring considerable nutrient security.

How Nominal gross domestic product Grows

It is like shooting fish in a barrel to demonstrate that nominal gross domestic product tin continuously grow, regardless of the unloose energy scenario. Nominal reward grow steadily due to custom, in addition to that nominal growth charge per unit of measurement is to a greater extent than oftentimes than non faster than whatever pass upward inwards the working population (although this has non been truthful for Japan). 

Although the number of workers tin autumn due to rising unemployment, unemployment rates cannot rising forever every bit a termination of the automatic stabilisers. Therefore, full nominal reward volition rising on a sustained fashion over time. Within national income, at that spot is also the turn a profit part of the total. The turn a profit part moves only about (it is relatively high now), but its motility volition non survive plenty to derail the tendency inwards rising nominal income. And since Gross Domestic Income is equal to Gross Domestic Product (measurement issues aside), nominal gross domestic product volition rise.

One could fighting that this misses the dot - existent gross domestic product matter, non nominal. (Nominal gross domestic product growth could only stand upward for inflation.) But it does affair for things similar debt service burdens. If yous are modelling financial dynamics, nominal gross domestic product growth is far to a greater extent than of import than existent gross domestic product growth.

How Real gross domestic product Grows

(Note: inwards this section, I am going to utter most a "closed economy", which is actually only truthful for the public every bit a whole. I depository financial establishment notation the international complications below.)

Real gross domestic product growth tin survive idea of every bit multiplying the number of workers employed yesteryear the average mass of output per worker. And the output is non measured inwards terms of unloose energy or another construct, it is (generally) based on marketplace transactions. 

In monastic say for existent gross domestic product to grow on a tendency basis, the tendency output per worker needs to grow to a greater extent than than the tendency pass upward of the working population. Since population pass upward rates are to a greater extent than oftentimes than non not really large, the hurdle charge per unit of measurement for productivity growth inwards monastic say for at that spot to survive aggregate growth is non that high (1% should practise it).

Peak oil impacts the productivity of the workers inwards the unloose energy manufacture - to a greater extent than people demand to operate inwards monastic say to larn the same output. However, the productivity of energy-using sectors is non impacted. If I am using a chainsaw to chop downward trees, raising the cost of my fuel raises my cost of doing business, but I tin soundless cutting downward trees at the same pace. 

And the reality is that oil extraction is non labour-intensive. We practise non bring hundreds of millions of workers toiling with picks, shovels in addition to buckets to extract petroleum; the operate is done yesteryear a handful of workers. As an example, the nautical chart inwards a higher house shows that the work inwards the entire resources extraction sector inwards Canada - a major commodity producer - is a pocket-size pct of the population. Even if their measured productivity is dropping, it is non large plenty to drib the measured productivity of the labour forcefulness inwards aggregate.

I emphasised measured productivity for a ground - it has a bias towards higher productivity, every bit long every bit the mix of goods in addition to services produced changes. Higher unloose energy prices may stimulate tumult inwards production patterns, which volition accentuate this bias. As production of novel goods in addition to services ramps up, economies of scale boot in, in addition to so measured productivity volition rise. On transcend of that, added sense in addition to engineering should create efficiencies (which is what people commonly associate with productivity). It is solely possible that the novel goods in addition to services are less satisfying on some absolute scale relative to previous energy-intensive goods, but that is a value sentence that authorities statisticians practise non sweat to make. All they tin practise is mensurate the value of goods inwards marketplace prices, in addition to infer productivity based on the volumes of production.

Open Economy Considerations

H5N1 solid soil that is reliant upon unloose energy imports volition endure a terms-of-trade shock: the mass of the goods it exports demand to comprehend the same mass of unloose energy imports volition rise. This volition termination inwards a loss of purchasing power, which volition depress existent GDP. This volition hap fifty-fifty if at that spot is no drib inwards domestic productivity.

For the public every bit a whole, imports in addition to exports cyberspace out (or at to the lowest degree they are supposed to, published statistics practise non practise so). But most developed countries bring access to a lot of fresh water, in addition to so the gains on nutrient merchandise may cancel out the losses on unloose energy imports. And obviously, the province of affairs varies from country-to-country.

The Long-Term Threat To Growth

I utter over inwards the Appendix below how it appears possible for a hypothetical sustainable economic scheme to bring existent gross domestic product growth "forever". But the existent public growth scenario I utter over inwards a higher house runs into problems on a longer fourth dimension horizon (for sake of argument, say 100 years from now).

Remember my instance of how the increasing cost of oil does non drib the productivity of the user of a chain saw? Well, every bit many of my readers volition bring observed, my productivity inwards tree chopping volition collapse if am forced to exercise a human-powered buck saw due to a lack of fuel for my chainsaw.

My reading of the unloose energy scenarios is that at that spot volition survive plenty provide so that the "high productivity" activities volition survive able to bid away unloose energy from the "low productivity" frivolous unloose energy uses. But on a long plenty horizon, unloose energy production limits would commencement to forcefulness people to supersede external unloose energy sources with human or brute ability for critical tasks. 

To my mind, the key is agriculture. We cannot substitute other goods in addition to services for food. H5N1 reversion to non-intensive non-industrial farming would forcefulness a secular rising inwards agricultural employment, reversing the urbanisation of previous centuries. Improved noesis should hateful that crop yields are higher than they were historically (assuming soils are non also degraded), but productivity gains from year-to-year would survive low. Depending on the amount of unloose energy available, life would larn really similar to centuries ago, where at that spot was express economical dynamism. The terminate termination would survive collapse of productivity to a depression level, in addition to progress from that depression storey volition survive limited.

I would depository financial establishment notation that this scenario is a re-wording of the thesis of John Michael Greer (such every bit inwards the mass The Long Descent) inwards technocratic economical jargon. He argues that industrial civilization is next before civilizations towards collapse, but at a sedate footstep (that is, non inwards the shape suddenly apocalypse that is straightaway pop inwards fiction). He also highlights how our guild has an ingrained belief inwards progress, which makes such a scenario almost unthinkable. Given the extremely long fourth dimension frame, all I tin say is that the scenario is plausible, but far from certain. 

Appendix - How Real gross domestic product Can Grow "Forever"

In "Exponential Economist Meets Finite Physicist", Professor Murphy argues inwards "Act Three" that it is impossible to bring steady unloose energy usage in addition to growing existent GDP. I believe that this is possible inwards a (hypothetical) sustainable society. I volition depository financial establishment notation that I bring non worked through the entire existent gross domestic product growth charge per unit of measurement calculation, but the machinery I outline below should work.

Imagine that nosotros bring an economic scheme that runs on renewable resources in addition to has a relatively fixed population. Nominal gross domestic product is $100/year, unloose energy costs are $10/year, in addition to the physical amount of unloose energy used is fixed (which implies that the unit of measurement cost of unloose energy is fixed). 

However, at that spot is a continual rotation of novel goods in addition to services that are produced inside the economy. The $90 inwards non-energy spending hence buys a dissimilar mix of goods in addition to services over time.

Now, imagine that spending is reallocated from a less pop existing production H5N1 to a novel production B inwards twelvemonth t+1 (relative to twelvemonth t). The cost for 1 unit of measurement at fourth dimension t is $1 for both products H5N1 in addition to B. The logic is slightly dissimilar for a physical expert than for a service.

• If the production is an insubstantial service, it is solely possible that the producer of B could create 1.1 units for a selling cost of $0.91 (=$1/1.1). The full dollar revenue is unchanged per unit, but a greater number of units of B are sold. Take for instance the possibility of selling to a greater extent than concert tickets inwards a hall that is below seating capacity. This tin survive done without hitting physical constraints, at to the lowest degree for the calculation year.
• If both products are goods that require physical inputs, nosotros bring to survive to a greater extent than careful. Assume that the production of 1 unit of measurement of H5N1 or B inwards year t requires 1 unit of measurement of some physical input. However, nosotros assume that production B was new, in addition to at that spot is less physical wastage inwards its production inwards twelvemonth t+1. It volition survive possible to increase the number of units of B produced yesteryear to a greater extent than than the drib inwards the production of the number of units of A. Since nosotros assume that dollar revenue paid for the 2 products is unchanged, it implies a drib inwards the cost of B inwards twelvemonth t+1.

Nominal gross domestic product is unchanged, but the cost storey dropped. By implication, existent gross domestic product rose. By continuously creating novel goods in addition to services which larn into the economic scheme at a relatively high cost storey in addition to and then drop, the cost storey tin survive inwards a continuous province of deflation. (Note that the logic would pause downward if at that spot was only a pocket-size fixed laid of products that are produced each twelvemonth with similar weightings; at that spot are limits to applied scientific discipline efficiency gains.) This allows existent gross domestic product to grow "forever", fifty-fifty with a fixed unloose energy part of (nominal) GDP.

(I bring non worked out the economy-wide calculations, in addition to so I am unsure what happens to the ratio of the existent unloose energy constituent of gross domestic product versus aggregate existent GDP. I believe that it would collapse, every bit the residuum of the economic scheme is growing inwards existent terms. But because of effects such every bit this, existent gross domestic product cost levels are rebased every so often.  This rebasing shows upward inwards things similar referring to "GDP inwards chained 2009 dollars"; 2009 is the base of operations twelvemonth used for prices, in addition to for that year, the weightings inwards existent gross domestic product of components of gross domestic product volition check that for nominal GDP. This agency that inwards this example, the published information would revert to a 10% unloose energy weighting inwards existent gross domestic product periodically.  Since the components of existent gross domestic product are non additive, at that spot tin survive considerable drift inwards components that follow a cost trajectory that diverges from the aggregate, such every bit computers.)

In the epilogue of his article, Professor Murphy noted that he was aware of possibilities similar this:

So I tin twist my caput into thinking of lineament of life evolution inwards an otherwise steady-state every bit beingness a shape of indefinite growth. But it’s non your father’s growth. [emphasis mine - BR] It’s non growing GDP, growing unloose energy use, involvement on depository financial establishment accounts, loans, fractional reserve money, investment. It’s a whole dissimilar ballgame, folks. 

Economies bring switched over to a heavy weighting inwards services decades ago, in addition to hence most of the economic scheme is insubstantial materials similar software. But the coin earned yesteryear software companies matters. This creates some foreign effects inwards existent gross domestic product calculations. But nosotros cannot drib services out of gross domestic product only to encounter the biases of physicists who only desire to focus on physical quantities.

Footnote:

* From the dot of sentiment of economics, adding "exponential" every bit a qualifier to "growth" is redundant, since economical growth rates are invariably presented every bit pct growth rates. An economic scheme growing inwards a linear fashion (for example) would bring a "growth rate" that converges to zero.

See Also:

• Peak Oil And Personal Finance 

(c) Brian Romanchuk 2014