Fundamental Limits to Growth

Our current economic system is heavily dependent on the assumption that the economy must grow, continuously, year after year. That assumption is breaking down, and we must start thinking about what we'll do without it.

When the economy is growing, we consider it to be healthy. Businesses are optimistic, the job market is favourable, investment flows freely, and profits are up.

When economic growth slows or halts, we worry that there's a problem. Businesses become cautious, jobs are hard to find, and investors retreat to conservative positions.

The assumption that growth is essential, and that the rate of growth is indicative of the overall health of the economy (and, therefore, society) is at the core of modern economic decision-making. During the last few centuries, this assumption has survived, and it has formed the basis of many of our key metrics of economic health. Now, though, the assumption has run its course and we must have a serious conversation on what will replace it.

The problem, in a nutshell, is that Earth is finite. No matter how much we try, we cannot create appreciable quantities of new land, nor can we create new non-renewable natural resources. We are also severely limited in our access to energy; we cannot burn fossil fuels without damaging the climate and ecosystems, and even if we were to create a free unlimited energy source, we would eventually be stymied by the planet's limited ability to radiate waste heat into space. Energy and resources are the fundamental underlying drivers of economics in the modern system, and they are capped by finite bounds. Exponential economic growth, as we presently strive for, must necessarily hit those bounds, at which point the global economic system would crash.

Such a collision is mathematically inevitable if we insist on continuous growth (of, say, 2% per year) in the real economy. The only question is when. I would suggest there is a strong case, given what we know about consuption rates of non-renewable resources relative to known and potential reserves, that it's within a few decades on either side of our current position.

It is imperative, therefore, that before we exceed the fundamental limits to economic growth, we transition to an economic model that is stable in a steady, zero-growth state. To use a bit of control systems parlance, the global economic system needs to be overdamped – that is, it should react slowly and eventually settle down without overshooting – instead of the underdamped system we currently have, which overshoots its targets dramatically and then oscillates repeatedly before reaching a stable condition. The latter case, as we've seen repeatedly through the 19th and 20th centuries, leads to boom/bust cycles that hurt everyone except the wealthiest financial mavens, and – if it's still in place when we overshoot the global limits – has the potential to cause an economic collapse unlike any we've seen before.

The mathematical necessity for the transition to steady-state economics is hard to deny. If we attempt to continue forcing growth in our existing systems, we will eventually overshoot the planet's ability to provide the raw materials, food, water and energy needed for this growth.

What would a steady-state economic system look like, though? I honestly don't know. We have to create one, but we may not be entirely sure what to do or how to do it. So, in the coming months and years, I'm going to try to collect some of the pieces necessary to solve this puzzle. Hopefully I can take a few of you with me as we try to figure out how to make this work.





Hi Matt,
Interesting that there were 41 comments on John's web site about what direction a shackle should be oriented but I was the only one interested in the fact that growth--- the basic assumption of all current economic systems, and the ultimate cause of the destruction of the world's ocean ecosystems was of no interest to the sailors who frequent the site.

Here is another great layman's explanation. Not that it contains anything anyone cares to grasp.
"delusion is the opium of the masses."


"Delusion is the opium of the masses"

Matthew's picture

I'll have to remember that one, Richard. Thanks.
Interesting video series. I haven't watched the whole thing yet but the rest of it is in the queue. Thanks for sharing!

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