Why We Want Growth, Why We Can’t Have It, and What This Means

I want to talk a little about growth and why it is such a powerful force in society.

Growth is an interesting denial topic because it is obvious, even to a child or uneducated person, that infinite growth is not possible on a finite planet. Yet growth is a top priority for every country in the world, and most citizens. I have a hunch that most of our leaders and citizens do not understand the real reason they want growth which makes this topic even more interesting.

Albert Bartlett argued that part of the problem is that the human brain does not understand the exponential function. He has a point. I have taken about 10 university level mathematics courses and I still needed to create a little spreadsheet to satisfy myself that Bartlett was correct. Anything that grows exponentially, regardless of how small the exponent is, will eventually explode into a hockey stick. So if you want society to become more sustainable, it is not sufficient to argue that we should reduce our goal of say 4% annual growth to a smaller number. Any growth rate bigger than zero is a problem.

But even without this advanced understanding of exponential growth, it is still obvious that growth creates many problems. Why then does almost everyone want growth?

I think most people want growth because most people want the future to be better for themselves and their children. The logic being that in a growing economy there is a good chance my income and wealth will grow. There are other human behaviors that create a desire for growth such as competition for status, the maximum power principle, and our dopamine response to novelty. But I think most people mainly want the future to be better rather than worse. More is a happy thought. Less is a depressing thought.

There is in fact a much bigger reason to desire growth that few people understand and it has to do with the design of our monetary system.

We have a debt based fractional reserve monetary system. Money is not created at the same time that we create real stuff to buy. Money is created in advance of us creating real stuff to buy. In other words, money is loaned into existence on the promise of it being repaid from future earnings. The mathematics of this system requires growth to pay the interest on debt. I may write another essay to explain this in more detail but for the purposes of this essay please assume these statements as true, because they are.

The real reason growth is so important is not because growth will give us a little more next year, it is because growth gives us A LOT more today.

It’s all about debt. An example is probably the best way to explain this.

Let’s assume you are an environmentally aware person trying to live a low impact life. You need and want a place to live. A small used house will suffice. Lets say it costs $200,000. You have a modest income and you are able to save $10,000 per year. In a no-growth economy the only money available to borrow is surplus money saved by someone else. Therefore a no-growth economy has very little credit available and you would probably have to live with your parents and save for 20 years before you could buy the house. In a growing economy, you can save a down payment for 2 years and then borrow the balance of $180,000 to be repaid over the next 18 years. No other people had to save the $180,000 you borrowed. The $180,000 was created out of thin air on the promise of you repaying it with interest. Even though you only own 10% of the house, you get to enjoy 100% of the house now. You do not have to wait 20 years.

This logic applies to everything we typically purchase on credit like education, cars, furniture, appliances, and vacations. For many people struggling today, this logic also applies to necessities like groceries and gasoline.

Back to the original example. You are a green aware person. You did your best by buying a small used house. To enjoy the house now rather than waiting 20 years you needed an economy that is growing. What are the implications of an economy that is growing at say 3%? Anything that grows at 3% per year will double in size every 25 years (5% doubles in 16 years, 2% doubles in 36 years). So if you live for 75 years in an economy that is growing at 3% then the human footprint will be 8 times larger when you die than when you were born. Eight times! Think about that. Imagine you have a baby today and imagine Earth with 8 x 7=56 billion people and an economy of 8 x $108 = $864 trillion dollars when your child dies. Obviously this is not going to happen and we will destroy our home and most other life if we try to get there.

We all need some form of shelter to survive. A house with furniture and appliances and plumbing really does improve the quality of our lives. But we can’t destroy the planet to have a house. What to do?

There are no easy answers to this conundrum. There may be no answer. Perhaps in the long run we won’t be able to live in a nice house. I need to think more about this but my current belief is that if we could constrain our population to zero growth, and if we adopted policies to ensure the economy does not grow, then it probably means that multiple generations of a family need to share a house. For example, in a richer world, newly weds would move into their grandparent’s home and the grandparents would move into the space vacated by the newly weds in their child’s home. In a poorer world, all 3 generations would live in the same house.

There are many other deep implications of a no-growth world.

Most of the technology we enjoy today requires a large amount of up-front capital. For example, a television takes hundreds of people to design, billion dollar mines to extract the raw materials, billion dollar factories to produce its components, a billion dollar global supply chain of ships and trucks for transport, a many billion dollar energy infrastructure for oil and electricity, a billion dollar industry for television program content creation and fiber optic distribution. None of this is possible without a lot of debt to build and maintain the infrastructure.

It’s quite possible that we won’t be able to have advanced technology products like cars and airplanes and televisions and cell phones in a no-growth world.

A no-growth world also has huge implications for governments. Every country in the world today operates with a deficit which means they spend more than they collect in taxes by borrowing money. This in turn means that most citizens enjoy many more services like health care, education, water, sanitation, security, unemployment insurance, and old age pensions than they pay for. This is only possible when governments have access to large amounts of credit and this is only possible in a growing economy.

Politicians usually get elected by promising things to citizens that cost money. Since all countries are already running large deficits, our leaders are highly motivated to achieve more economic growth because this helps them stay in power. This dynamic also explains why government deficits tend to grow and often become dangerously high.

Banks make money by loaning money and more growth means they can loan more money. A no-growth world would have many fewer banks.

The value of a company is primarily determined by the growth rate of its profits. It’s much easier for a company to grow when the overall economy is growing. Managers are often compensated based on share price and are highly motivated to grow their company.

The concept of retiring and living on a pension depends on growth. If the value of money invested by pension funds in company shares did not grow there would not be sufficient funds for most people to live on at retirement. It may not be possible to retire in a no-growth world.

Last but not least, growth is required to maintain the value of the majority of our wealth which is in the form of debt. Without growth it is not possible to make interest payments and the debt will default and lose its value. This in turn will reduce the value of assets purchased with debt. Goodbye investment portfolios and million dollar shacks in San Francisco. Hello a much poorer world.

Clearly there are some very good reasons for growth. At the same time, growth cannot continue forever due to physical limits, and because we are already destroying the planet with our current footprint.

Today’s myriad economic problems and our weird and unprecedented responses to these problems are primarily due to the fact we have hit limits to growth.

Everything we do and make requires energy. By using external energy, in addition to our muscles, we increase our productivity and ability to create wealth. Energy extraction and consumption must increase for the economy to grow. Efficiency can help, but we have already harvested most of what is possible and are bumping up against the laws of physics for any further efficiency gains.

Most of our energy is fossil carbon which is a depleting non-renewable resource and extraction rates cannot increase without higher energy prices. Higher energy prices, above say $80 (not the current temporary $30 deflation price), are not possible because consumers and governments have already borrowed the maximum that is possible, even at zero interest rates.

Most renewable energy costs more than most non-renewable energy, and renewable energy is dependent on non-renewable energy so the price of both tend to scale together. It is therefore unlikely we could run today’s civilization on renewable energy, but even if we could, switching over would require a huge amount of up-front debt that will not be available in our growth constrained world.

It’s too late to change, and it probably never was possible to continue this lifestyle without cheap fossil energy.

Pain is on the horizon. It can’t be avoided. I think a proactive response of conservation, austerity, and population reduction measures might help by slowing us down in a more controlled manner, rather than our current high-speed trajectory towards a brick wall.

In conclusion, the end of growth is a really big issue.

We are not considering wise strategies to mitigate the problem.

We don’t even talk about it.

We deny the problem exists.

13 thoughts on “Why We Want Growth, Why We Can’t Have It, and What This Means”

  1. An excellent elucidation about debt – Thank you! Also the exponential function – I have had disagreements before with people who say overpopulation is a recent problem despite pointing out that a long period of time growth looks flat on a graph but turns rapidly into a hockey stick. Have you seen the Big Short? There is a great fantasy scene where the derivatives market is shown as a blackjack game in Vegas, where on person bets at the table, someone behind her bets with someone else on her bet, with longer odds, and then behind the, onlookers bet on the bet on the bet. It’s hilarious.

    This part “I think most people want growth because most people want the future to be better for themselves and their children. The logic being that in a growing economy there is a good chance my income and wealth will grow.” I think gives to much credit to logic. People aren’t logical, and the wannabe biologist in me thinks that humans want growth the same as any other species – they have more offspring than they need to replace themselves, because typically, they don’t all make it. So to quite an extent, today’s overpopulation is due more to reduced infant mortality and premature death in general than growth (although there is also growth but not as fast.)

    Very well written and enjoyable to read, I hope you keep blogging!

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    1. Thanks Gail. I’ll watch The Big Short soon. Sounds like I’ll enjoy it.

      You might be right about why people want growth. I wasn’t trying to imply people are logical. I think they like the good feeling of a bigger and better future. I did not base this opinion on research but rather observations in my own life. Watching my grandmother and mother for example and how they felt about the lives of their children. It’s hard to separate our feelings from our genes’ desire to replicate. They are probably the same thing.

      I agree that over population has been driven largely by reduced infant mortality and extended life spans. I’ve never done the math but I expect a global one child policy could have kept our growth in check. I’m planning a future essay on population.

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  2. Excellent Rob! While everything you explain seems fairly obvious when I read it (a testament to your clear thinking and writing) I also notice how living in this ‘civilization’ and participating in its’ economy has had a side-effect (intended?) of making grasping these ideas challenging. It’s no wonder I sometimes feel lost in the discussions on Jay’s list!
    Think I’ll read this a few more times, and look at my life through its’ lens.

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    1. Thanks Peter. If what I said is true, and I think it is, then it leads to an interesting thought experiment. Is it possible to live sustainably and have an technologically advanced civilization? I’m thinking not. Perhaps if we were wise when we discovered fossil energy and decided to constrain growth then we could not have achieved and enjoyed what we have. Feels like a good topic for a future post.

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      1. hunter-gatherer lifestyle. Even the preindustrial civilizations eventually exhausted their soils and couldn’t maintain their complexity and population. If you have to dig holes in the ground it’s not sustainable (indefinitely).
        For our civilization the last point in time to avert disaster was after WW II and before the “Great Acceleration” that followed. There are still many people alive who were born before the world reached a population of 3 billion. The goal should have been a mostly rural agricultural economy of less than 1 billion people aided by a small but clever industry that focuses on essentials, to get the benefits of modern science and technology (obviously microchips and jets are not achievable at this scale – nor are they needed) . That could have lasted for many centuries, maybe even millenia.
        In the 70s we could still have achieved a soft landing by immediately reducing population, deindustrialisation and conservation of resources.
        Now, 40 years later and almost double the population, it’s too late.

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        1. I agree with you that we should have acted sooner. What fascinates me is that smart people like Dennis Meadows warned us and we aggressively chose to ignore them. Today we could choose to climb down from a lower elevation rather than falling from a higher elevation in the future but we don’t even discuss the options. Hence my interest in genetic denial.

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        2. Psychoanalysts have known since Freud that we repress uncomfortable/threatening truths about ourselves and our situation, especially cognitions related to our own death and our life’s futility, in order to function normally in an overwhelmingly powerful and dangerous world. That’s the flip-side of too much consciousness.

          I think we never had any realistic option of averting the coming catastrophe, if we take human nature into account.
          The rational thing to do would have been to come up with an answer to what it is we want to achieve here on earth, take stock of the resources and means available to us and realistically work toward that goal.
          But the result would have been that an industrial society could ever only be a short period in human history, anyway.
          The way humans act in reality is to plunge ahead in an unexamined manner, lead by hope/optimism and driven by competition and the knowledge of their mortality – individually, but also at the level of whole societies. For example, people still have children in already overpopulated and famine-stricken areas!
          The cold war and the related quest for power would have prevented any effort of limiting industry in the 70s.
          Today, it is too late to climb down in an orderly manner; we could reduce the extent and velocity of the fall by acting now, but we would forego the remaining years of peace and abundance we have with BAU.

          The end result will be a much reduced population living agriculturally as in the middle-ages (ouch!), interrupted by ice ages, or as hunter-gatherers, within the carrying capacity of the earth (1 billion?) for as long as nature allows it – millions of years maybe.
          FWIW, we can claim to be alive in the most interesting period of human history.

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            1. I think we can’t win that much if we pull the brakes now.
              For me personally other species are not of much concern as I don’t see any intrinsic value in them.
              The grandchildren (those born 60 years from now) will have to live in a mostly crashed or post-apocalyptic world anyway. The question is, how to reduce the suffering of those already alive or born in the near future?

              We should reduce our population immediately, but we should have done so already 70 years ago. Most population growth is in developing countries and it would be virtually impossible to enforce population control. There are deep-rooted psychological mechanisms and cultural values at work compelling people to breed (and you’re going to run into denial if you tried to argue rationally). So there is no one in charge who could realistically control the momentum of population growth.

              The economy could be slowed down by a political decision, but I think it would be impossible to do it in a controlled way, though I’m no expert on the matter. If we pull the brakes now, it might be we end up with a shattered economy, as capitalism only works within a growing economy. We’re going to experience a financial reset in the not too distant future anyway, when the 40-year debt bubble bursts (both IMF and Worldbank have sort of warned recently). I doubt if the global economy can reconstitute itself after it crashed thoroughly and we’re on the descending side of Hubbert’s curve. That means critical global supply-chains would remain interrupted and many things would cease to function. So we go into crisis-mode and focus only on the essentials of life again and see how long most of us can survive when society descends into chaos… it might be quite a while if the governments can manage things well…
              To sum up, if a mangaged decline isn’t possible, starting the collapse now wouldn’t be worth it, since the conditions after the crash and population reduction have occured will be roughly the same and out of our control.
              But there isn’t even a choice since 99% of people are in denial of what’s ahead and believe there are no predicaments, only “challenges”, so we’re going to see things forced upon us.

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  3. “Money is created in advance of us creating real stuff to buy”

    I think this is the potential source of some confusion, money does not initiate Economic activity in all cases it is an intermediary token or rain check which has profound effects on social relations and commerce between individuals and nations but is a mere Idea and can be anything we imagine it to be.
    Energy, on the other hand, is something which can be harnessed and accessed in the complete absence of Money or debt.We are limited by Physical Resources and Natural Boundaries, Money and Debt are only limiting by choice or as Aristotle put it.
    “Money was intended to be used in exchange, but not to increase at interest. And this term interest, which means the birth of money from money, is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth this is the most unnatural”
    Book I, 1258b.4
    Nomisma (Greek: νόμισμα) was the ancient Greek word for “money” and is derived from nomos (νόμος) “anything assigned, a usage, custom, law, ordinance”.[1]

    “….but money has become by convention a sort of representative of demand; this is why it has the name ‘money’ (nomisma)-because it exists not by nature but by law (nomos) and it is in our power to change it and make it useless.” Aristotle, Nicomachean Ethics [1133b 1].[2]
    In modern Greek, the word nomisma means “currency”,[3] It is also a term used by numismatists when referring to the pieces of money or coin in the plural nomismata an example of which is the Aes rude of Numa Pompilius (the 2nd King of Rome).[4]

    I think that what the EROI Cliff shows us is that we can make sensible energy investment choices and achieve a steady state Political Economy of Abundance, the main restraints are actually psychological and status based for which I recommend close study of the Pigou Dalton Principle.
    https://en.wikipedia.org/wiki/Pigou%E2%80%93Dalton_principle
    https://www.ophi.org.uk/wp-content/uploads/Dalton-1920.pdf

    If you dig into Pigou and Dalton their insight is that Status and Hierarchy and maintaining peoples illusions as to their place in the social pecking order are rather more important to getting a consensus to distribution of the wealth of the society than are levels of income or disposable income and therefore absolute levels of taxation Quite apart from the fact that Taxation has nothing to do with Spending of necessity it is though a convenient political myth.
    To Wit
    Beardsley Ruml.
    http://letthemconfectsweeterlies.blogspot.se/2017/05/taxation-for-revenue-is-obsolete.html

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