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 that cost money to the citizens. 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.

5 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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