Perpetual growth in a world of finite resources

take everything

Just reading "The systems view of life" there and it reminds me of this problem.

Financial systems rely on perpetual growth if I'm not mistaken.
Yet the world's resources are finite.
This is apart from the implications of perpetual growth on other systems.
This seems on the face of it an absurdity.
Yet you don't hear people banging on too much about when it'll all coming crashing down around our ears.
Just wondering what your thoughts are on this in terms of what needs to be done (fundamental changes in thinking etc).

KomradeBishop

There's a great article on this here, from an ex-NASA physicist - explaining this very well, and showing how worryingly unaware economists are of this issue:
http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-physicist/

Summarizing one of the notable parts: The current economic system depends upon neverending economic growth; economic growth is inseparably tied to growth in energy generation (even if only by a tiny amount, that's enough to cause problems); and by the laws of thermodynamics, increases in energy generation unavoidably lead to an increase in waste-heat being pumped into the atmosphere.

At the current rate of economic growth, the increase in waste-heat being put into the atmosphere, means the Earth's surface would reach 100°C in 400 years - obviously this is unsustainable, and the world economy/environment would come apart long before then.


I've done a lot of reading up on economics over the last few years, and it's a complicated topic - one that is very rooted in emotion/ideology, and it is this (emotion/ideology/politics) that is preventing the necessary change from happening.
The solutions are actually all simple enough (steady-state economists have most of it figured out), but the ideology behind the current flawed economic system, grants a wide ranging class of people a lot of power over society/politics/economies, which they will fight to maintain (even if it leads to global warming in the medium/long term).


The more technical/controversial bit, explaining the reason the current economic system requires neverending growth (those uninterested in the techical bits, can stop reading here):
Around 97% of the money supply for most countries, is created by banks when they make loans (banks do not lend out deposits/savings - that is actually a very prevalent myth - money is created from nothing, when they give out loans, and the Bank of England - the UK central bank - confirms this).

This means that Money and Debt are both created at the same time, at a 1:1 ratio - but Debt carries interest, so very soon, the amount of money that has to be paid back, exceeds the amount that was loaned out in the first place.

In the current system, there is practically no other source of money other than debt/loans though - this means, that if you add up all outstanding loans in the economy, the total amount of Debt owed, greatly exceeds the amount of Money available in the economy - and the amount of Debt vs Money, will keep on growing and growing, until an economic crisis slows economic growth down enough, to make a lot of the Debt unsustainable and impossible to pay back - and then a lot of it will be written off (we're still waiting for that to happen in the current crisis).

That's the reason this pushes perpetual economic growth: In this system, if you slow down the growth of the economy, debts become unsustainable and economic crisis sets in permanently until you restore growth.


The solution: (this is also a bit complicated, and is very hard for people to accept - usually they trip up on 'hyperinflation' myths)
You need a way to add money to the economy, that does not also add Debt, and you need a way to take money out of the economy, that can be controlled in both timing and quantity (loan repayments take money out, but are very inflexible in quantity/timing).

The main way to do this, is by e.g. having the central bank create money and give it to government to spend into the economy (the central bank is in charge of managing inflation, and withholds money if e.g. 2-4% inflation is breached), and then to remove money from the economy, the government taxes it out of the economy (best way to do this, is if government targets taxes at inflating sectors of the economy - the central bank could mandate that the government does this as well; this plays a helpful role in keeping inflation under control).
This is where people trip-up on hyperinflation myths, but note that the whole policy is based on the central bank and taxes, both managing inflation.


I've done a lot of reading up, and there isn't really any other solution that I can see. The above is fairly controversial stuff though - mainly because of how it removes a lot of power from e.g. banks and finance, who have control over money creation (giving them huge power over society/politics/economies) - but if you put the time into understanding how money creation works and how that ties into economic growth, eventually you see how it makes sense (took me years to get a good overview though).

It's a discussion that needs to happen more often really, because very few people have an awareness of these issues - but it's pretty much the single most important political/economic/societal/environmental topic that exists.

Black Swan

take everything wrote: »

Financial systems rely on perpetual growth if I'm not mistaken.

KomradeBishop wrote: »

The current economic system depends upon neverending economic growth;

Is this a linear model of growth, when there are possible alternative perspectives that may be more cyclical, interactive, and/or transformative historically? One different perspective was suggested by Will and Ariel Durant in "Economics and History" found in The Lessons of History (1968). Rather than a linear model of economic growth, they see one more cyclical, rising to peaks and descending to valleys in alternating fashion overtime.

KomradeBishop

It's not so much a model, it's just that the current economic system - specifically the monetary system - depends upon sustained growth, and becomes more and more unstable each time growth goes into a trough (due to private debt levels); I explain it in more detail in the technical part of my post above.

Black Swan

KomradeBishop wrote: »

It's not so much a model, it's just that the current economic system - specifically the monetary system - depends upon sustained growth, and becomes more and more unstable each time growth goes into a trough (due to private debt levels); I explain it in more detail in the technical part of my post above.

Can you (or someone you can cite) model these relationships you suggest here? Perhaps a diagram of these relationships, with a brief explanation would be useful; i.e., a picture being worth a thousand words (please excuse the cliché comment). Gareth Morgan in Images of Organisation (2006) pairs such schematics with discussion to aid understanding, as do many when attempting to clarify their positions. This would be helpful to me, and perhaps others when discussing a complex issue such as this.

KomradeBishop

That's a very good suggestion, though I don't think I have anything like that at hand - I'll ask around elsewhere, on some economic blogs I frequent, to see if I any of the community there can help me out with finding something like that, or with providing a better-framed/more-understandable representation of my argument.

Black Swan

KomradeBishop wrote: »

I'll ask around elsewhere, on some economic blogs I frequent, to see if I any of the community there can help me out with finding something like that

I often find such schematics used in peer reviewed articles and doc dissertations to illustrate and discuss their conceptual frameworks. If I was more familiar with your topic of discussion, I could help, but you appear more qualified.

Manach

This might not be as much an issue in the coming century, at least according to "Capital in the 21st Century". The basic premise is that economic growth has historically been low, linked to population growth. Once this begins to level off, then economic growth will become marginal.

Earlgreyhot

Manach wrote: »

This might not be as much an issue in the coming century, at least according to "Capital in the 21st Century". The basic premise is that economic growth has historically been low, linked to population growth. Once this begins to level off, then economic growth will become marginal.

Technology improvements increases gdp.