Monday, June 4, 2012

Equilibrium and Growth

Our stumbling, tottering economy once more brought an old question to mind. Is our economic model sustainable in the long haul? And by long haul I mean centuries. Is the concept of sustained and, ideally, continuously increasing growth a fundamental mistake? To be sure, the current troubles may go away, the Dow shall rise again, and so on. Perhaps we haven’t as yet reached the breaking point when growth has finally piled enough straw on us so that the last one breaks the camel’s back. But eventually, as I keep harping here, oil will run out. One way or the other, our accustomed ways will come to an end. And in that context the “current troubles” may be a Godsend if we read the signals right.

Herewith I present a comparison of GDP and Population growth, side by side, each indexed at 100 for the year 1995—as if the modern age had just begun that year.

The GDP curve is based on chained-dollars, meaning constant dollars adjusted for inflation. The population data are from the U.S. Bureau of the Census. The uptick in population between 1999 and 2000 represents a correction, as it were, introduced by the full 2000 census. It suggests that annual intercensal estimates in the 1990s had been understating the actual population increase.

What this shows us is that GDP consistently grows at a rate well above that of the population. In this 15-year sampling, population increased at the rate of 1.08 and GDP at 2.46 percent a year. Population grew every year, as might be expected; the GDP dipped in 2008 and 2009—the Great Recession. The divergence of these curves really spell over-consumption, thus consumption significantly exceeding what we genuinely need. To be sure, today we need a great deal more than we needed in 1900. But if we just consumed, in 2010, what we did in 1995 (not exactly primitive times), the GDP growth rate would closely paralleling the population increase.

This sort of thing strikes the modern mind as na├»ve, at minimum, plain ignorant at max. After all our life style must improve, every year. Haven’t you heard? What doesn’t grow, declines. Equilibrium, however, is the real sign of sustainability. That also applies, to be sure, to population. And there we see the genuine paradox of growth. Our way of life is unsustainable even if our economy only grew at the population rate.

A good sci-fi novel comes to mind. It was Stand on Zanzibar, by John Brunner, 1968. Back then there was the tongue-in-cheek suggestion that all of the world’s population could fit on the Isle of Wight in England (147 square miles) if they were standing up. Brunner projected his tale to 2010 and figured that the then 7 billion, as he projected world population, would have to “stand on Zanzibar,” off Africa, 600 square miles. We’re getting there. We’re getting there…

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