Friday, October 10, 2014

Limits to growth

Economics is not usually the topic of this blog, but this week I read something that I found quite remarkable.

Nobel Prize winning macro-economist Paul Krugman is usually a source of common sense, for example when he points out that an economic crisis in which businesses and consumers are unwilling to spend is probably not the ideal time for the government to also stop spending because then nobody moves money around and the whole economy just goes into tailspin.

However, he does appear to share the conviction of most economists that (a) growth is always desirable and (b) can go on forever. So earlier this week he reacted, with a piece entitled Slow Steaming and the Supposed Limits to Growth, to Mark Buchanan's admittedly provocative-sounding article Economists are Blind to the Limits of Growth by making the following argument:
After 2008, when oil prices rose sharply, shipping companies -- which send massive container ships on regular "pendulum routes", taking stuff (say) from Rotterdam to China and back again -- responded by reducing the speed of their ships. It turns out that steaming more slowly reduces fuel consumption more than proportionately to the reduction in speed: [...]

So what happens when you switch to slow steaming? Any one ship will carry less freight over the course of a year, because it can do fewer swings of the pendulum (although the number of trips won't fall as much as the reduction in speed, because the time spent loading and unloading doesn't change.) But you can still carry as much freight as before, simply by using more ships -- that is, by supplying more labor and capital. If you do that, output -- the number of tons shipped -- hasn't changed; but fuel consumption has fallen.

And of course by using still more ships, you can combine higher output with less fuel consumption. There is, despite what some people who think they're being sophisticated somehow believe, no reason at all that you can't produce more while using less energy. It's not a free lunch -- it requires more of other inputs -- but that's just ordinary economics. Energy is just an input like other inputs.
Or, to summarise his rebuttal: We can save some energy, and therefore there are no limits to growth.

Now admittedly I am not a famous economist, so it is possible that I am merely missing some nuance here, but can anybody tell me where the difference is between Krugman's argument and the following?
Arthur: Hey Ben, I notice that we are driving towards a cliff at 60 km/h. Don't you think you should, I don't know, stop the car at some point so that we don't die?

Ben: Not at all, there is no reason to worry. We can go ahead in a straight line forever.

Arthur: But look, there is a cliff. We will fall to our deaths.

Ben: Haha, you are pessimistic because you simply don't understand how driving works. See, I can reduce our speed to 50 km/h, and then we can continue driving onwards without running off the cliff.
Really, is that not exactly the same logic? Am I missing something?

There are other ways of putting it. As commenter Alex W (no relation) under Krugman's piece pointed out:
I'm not saying that I disagree with the overall thrust of Mr. Krugman's column. There is, definitely, a lot of room to reduce greenhouse gas emissions without reducing energy consumption, and a lot of room to reduce energy consumption without hurting economic growth. We could, and should, make huge strides in those areas. We could and should have done that thirty years ago, in fact.

But there is a limit. 3-4% year to year economic growth without bound means a doubling every ~20 years. Either energy production will have to increase without bound as well, or it will vanish to 0% of the total economic activity, in the limit. In the first case, we're right back at a problem of pure physics. I discard the second case because of its facial implausibility (activities that require an energy input will shrink to NOTHING in comparison with total activity???) ...
Others pointed out that the additional ships and crews that are necessary to maintain services while using less fuel also cost energy to build and feed, respectively.

Yet another way of looking at it is this. Imagine for a moment that we have discovered how to conduct every activity humans would ever like to do in the most energy efficient way that is physically possible, and we have implemented all those ways. Now what? Our current economic system, our whole political ideology, would still be built around the assumption that a few percent of economic growth per year are the normal state of affairs.

So from that moment on, would we not still run into trouble because there is only so much planet? And it has been pointed out that (assuming that infinite amounts of energy could simply be procured somehow) increasing our energy usage by current growth rates for another ca. 400 years would create so much heat on this planet that the oceans would boil.

At this point an objection might be advanced on the lines of, "yes, but we haven't yet implemented everything in the most energy efficient way possible, so there is still room for improvement". But that just shows that the real situation is even worse than the fantasy scenario I invoked above, that we would hit hard physical limits even earlier.

At least based on these considerations, it would appear as if growth simply has to stop at some point, even if that moment is perhaps still quite some time away, and we will ultimately have to find a stable equilibrium or experience a collapse. Again, I am not an economist, but it could be argued that physics and biology also have something to say on that issue.

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