Notes on Growth

Economies are, quite obviously, just another kind of ecosystem. Now it amused me this morning to see that when I did an “Images” search on Google using the search-word ecosystem, a large number of the images I got were circular. What goes around, comes around, you might say. The image that is usually placed outside the circle is that of the sun, signaling that it is the fundamental driver of the circulation.

In that circulation, growth is not the be-all and the end-all. It is one stage in a process. In that process inorganic resources are first produced into life with solar heat—and this is where growth takes place. Next the life produced is consumed, either by other life or by the sheer passage of time. That which has been consumed is decomposed back into minerals and gases, and the circulation thus continues.

Therefore the pop-business belief in growth—at all costs—is short-sighted. Growth is a natural aspect of economies. So is decline. The only more or less sustainable reality is the economy as a whole—but all ecologies, economies included, have limits. Energy is one. Population is the other. The optimum economies will be adaptive—limiting growth to population growth. Anything above that is to endanger the entire economy, sooner or later. Yet that, over-consumption, appears to be the suicidal aim of all modern free-market economies.

We are today approaching one of the limits—that of energy based on fossil fuels. But even suppose that we’ll come up with something to replace them. Then we shall have conquered Peak Oil but we shall be facing Peak People next.

I detected early signs of “irrational exuberance” yesterday—the punditry hoping that soon we shall be back to the free-for-all of growth, growth, growth.  Coincidentally, I saw previews of a documentary that shows the overwhelming decline of our infrastructure. Replacing all of that, the glory of the twentieth century’s publicly-led infrastructure building, is not in the cards, however. The coming growth, if it does revive, will be focused on ephemera.

In ordinary ecosystems—where humanity has not as yet invaded—the “free market” works effectively because consciousness is excluded. But in the economies of the world, consciousness must take the lead—both in the building up of things and in checking maladaptive behavior. We need a Guided Market, not a free one. Even when it’s guided, it will only take us so far. Overpopulation will sooner or later loom, signaled by water shortages. I won’t be here to see that, having declined and fallen into the possession of the decomposers. The bacteria and fungi will get my body in the end—but the core of me will leave the circle that, in this life, holds us all.

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My image is an overhead used by Knox College in Galesburg, IL (link).

In the Economy It’s Still 2011

We never see how the sun looks right now. Even when staring through a telescope with the appropriate filters, what we see right now is how the sun looked 8 minutes and 20 seconds ago—because it takes that long for light to travel 93 million miles. New Years day would be the ideal time to put up some numbers to show how our economy performed in 2011, but economies are extremely vast structures, thus by analogy similar to the sun and—given the time it takes to take measurements and to translate them into useful statistics—at least as far away. Right now we have some preliminary numbers for the way the economy performed in November of 2011. So far as our eyesight of that year’s concerned, December hasn’t happened yet. The first early indicators for employment in that month will issue on January 7, a week away. And those will be preliminary too, with November data probably changed. In effect it turns out that the sun is closer to us than the economy. Eight minutes is pretty good compared to a week for the first ever glimpse of 2011.

Growth in Perspective

Arguably the first industry in the modern sense was textiles and dates to the eighteenth century. Sophisticated machinery appeared for spinning and for weaving; the manufacturing activity moved from homes and small shops into factories; then steam power came to be applied to move that machinery. Ever since waves of innovation have created new industries and transformed the old ones: iron and other metals, steam, canals, rails, electricity, oil, telegraph, lighting, telephone, radio, automobiles, petrochemicals, air travel, atomic power, television, plastics, computers, Internet, and now cybernetic miniaturization.

All depending on where we date things from—say the invention of the flying shuttle (1733) or of the spinning jenny (1765)—we’ve had either a 278- or a 246-year cycle of development.

This development has significantly depended on access to fossil fuels augmented by atomic power. They’ve represented “found wealth” in the sense that we did not have to produce, by human or animal labor, the energy in the coal, oil, gas, and uranium we’ve simply harvested. But while we admire human ingenuity and give it all the credit, the industrial age is unthinkable without found wealth—and has made the exploitation of our innovation possible in the first place. But this process has also distorted our sense of what an economy is. Our economies have developed a dynamic of their own. The growth that we’ve experienced has come to demand new waves of innovation, the creation of new markets. In part this has been necessary because our innovation, combined with our use of found wealth, has also reduced the need for people. We’ve replaced human labor with machines running on fuels. Therefore, to keep pace with the artificial growth to which we have become accustomed, we desperately need the new simply to maintain it. With an absolutely diminishing demand for labor, thanks to automation—but with a growing population—we need the waves to continue unabated in order to accommodate increasing numbers.

We need growth because, to maintain our style of life, we must all continue to consume—and all of the products and services that we’ve already created. Mature markets—thus those that have come to depend on the population’s growth rate, which is lower than that of our economies—don’t contribute to growth. But we must maintain them. Thus the base keeps growing while also shedding jobs. But our need for greater-than-population growth is still there.

Now it is interesting to contemplate that we’re now in an age of miniaturization—and that that miniaturization process is itself beginning to feed on older, mature industries—as e-books are feeding on books. Each recent wave of industrial development has had a similar character. Each has improved functionalities while requiring fewer and fewer people to produce—but the same and growing number of people to consume.

In a word, we’re beginning to run out of legitimate markets. Not surprisingly, our services sector has become the largest sector. It is still absorbing people, but artificial intelligence, perhaps the next wave, will get rid of those people too—but not as the greatly desired customers.

At the risk of beating a dead horse—but in this day and age it might be necessary—let me put all of the above into a simple slogan:

The economy needs customers but has no use for employees.

So what is next? Cybernetic devices implanted in the body to replace organs that will presumably work much better than those that nature has produced? I do not, folks, have my tongue in my cheek. But I have decent eyesight. The solution is coming at us. It is the fossil sunset.

But when I hear the wise men agonizing over the economy, and wanting it to kick into gear again, to resume that growth we desperately need, I wonder if they fail to see what seems patently clear to me. This can’t go on forever. We must return to a situation of equilibrium again—where, as in the hoary past, growth was dominated by population growth—and that growth was limited by the fertility of nature.

Pyramid Revisited — Again

Back in June I presented a picture of the U.S. economy as a pyramid in two ways (link). The first was the conventional way, as we see pyramids in Egypt, showing the most basic elements at the bottom supporting, as it were, layers of economic activity above them. The second showed the same layers, but this time sized in proportion to their importance as part of the Gross Domestic Project. Here the pyramid looks more like a top spinning on a narrow tip, that tip being the most basic activities of Agriculture, Mining, Forestry, and Fisheries. That pictured showed the U.S. economy in 2010.

In a comment John Magee wrote as follows:

Now, wouldn’t it be interesting to compare that chart with previous decades? Offhand, I suspect that it looked a heck of a lot more like a pyramid in the 1950s.

I am pleased, today, to respond to John’s request. Once more I present the pyramids, this time with the 1950 version on top and the 2010 version on the bottom. Here is the picture…

…and, yes, John was right. The economy did look more like a pyramid sixty years ago, although even back then it was already resting on a rather narrow “basic” cluster of sectors.

What strikes the eye here is that the top three layers—thus those farthest removed from the nitty-gritty physical realities of life have all grown—and the more basic sectors have all shrunk, Manufacturing, Transportation, Power, Utilities, and Construction most dramatically.

What does such a change tell us about our fitness as a society? It tells us that we have become much more dependent on others for the basic goods by means of which real life proceeds. But in the process we’ve relinquished resources, know-how, and actual physical assets—have lost entire industries—to actors over-seas. In a peaceful, unchanging, and therefore predictable environment, that wouldn’t matter. But what loom ahead of us in this century are perhaps the most dramatic changes experienced by such a large global population: the drastic shrinkage of fossil fuels. Not that we’re at peace, bored with the same-old, same-old cornucopia disgorging wealth right on the mark. No. But what lies ahead is much more daunting than these troubled times.

We must become alert. And if we are asleep, wake up. We won’t survive on blackberries alone when the times begin to darken.

The Economy as a Bio-Phenomenon

Karl Smith on Modeled Behavior here comments on the long term growth trend of the economy and presents a graphic showing GDP since 1929. His comments, which note that GDP appears to ignore human fiddling, arose in reaction to some comments by columnist (and economist) Paul Krugman (link)—who emphasizes that long term trends are very hard to influence but short term interventions do have effects.

I thought I’d play with the same numbers. Smith’s graphic is in logarithmic form and delimits the maximum and minimum boundaries. His chart also shows the recessions beginning with the one that kicked in in January 1920—but without GDP data. These differences cause both the Depression and World War II to be more prominently visible than they are on mine—but he uses the same data; those Smith shows came from here; I used this table.  Here is my graphic:

To match Smith’s presentation, my graphic, in ordinary scale, features an exponential curve fit to the data, which is identical to a straight line on a log scale. On Smith’s graph, GDP does indeed form an almost straight line. The benefit of my approach is that divergences from trend are much easier to see.

In a word, GDP data closely match exponential growth—when rendered inflation-free by using BEA’s method of calculating constant dollars, the chained-dollar approach. In nature we see exponential growth in the biological sphere; it’s also called geometrical growth. Thus we might call economies bio-phenomena.

Over too many decades of working with data by now, I’ve discovered a truth. In collective matters, demography is fate. Time and time again I discovered that what I thought were new developments, divergences, or novelties in society or economics, these could all, with some work, be reduced to underlying changes in demography. The interventions by humanity’s organized bodies (read government) are almost always too feeble really to interfere with anything much. The interventions have to be major, as in great wars or falling prey to the temptations of huge bubbles. I remember laughing when, in the years leading up to the dot com bust people seriously proposed that fundamental economic laws were now being transcended…

Worth nothing in this version of the graphic (although also visible in Smith’s, but more difficult to see) is that the GDP traced its path above the exponential curve except for the Great Depression and the evidently harsh recession of 1981-1982—until, in the wake of the 1990-1991 recession, it has been consistently below that curve since and—beginning in 1999—diverging from it in a marked way.

The tail end of this graphic, its last decade or so, is food for thought, isn’t it? Is something unnatural happening out there? Our distance from the curve is growing, the finger is pointing in another direction. Has our economy detached itself from the biosphere somehow? And faltering because the sap no longer flows?

Oikonomia

Sometimes it’s useful to recall the roots of our God-words. Underneath the word economy are two Greek words; oikos means house and nemein to manage. The Greek word for steward, or manager, was oikonomos, and the activity engaged in was oikonomia. The Latin script did not have the letter K; Romans used C instead. They took the word over and spelled it oeconomia. Getting to us, the word went through French first, where it lost the leading O, acquired an accent aigu, and had its IA ending transformed into an IE: économie. We dropped the accent and transformed the IE into y. But the word still means household management.

But how does a simple phrase, indicating an activity that we engage in every day—taking out the garbage, filling up the car, calling the plumber, making the beds, cooking the meals—an activity fundamental to orderly and comfortable daily life, become a God-word? By expansion. At the level where it still works—or if it doesn’t we make changes promptly—one person is responsible, the steward. When we expand the thing, strange things happen. Economists are by definition not the people who run the economy—but those who write about it. The people said to be responsible for it, like the Federal Executive, have virtually nothing to do with it and only engage in ritual gestures, like priests everywhere do. We’re supposed to think, indeed believe, that they are in intimate contact with the Ineffable, but they are just doing mumbo jumbo. Oikonomia, the god, is worshipped, his difficult-to-read pronouncements are discernible, vaguely, by means of a vast semi-mathematical activity itself obscure to actual view except for glimpses of people, on Nightly Business Report, who frantically jump up and down gesturing with hands filled with little pieces of paper. We call this mystery the Dow. He, the god, he has a hand—but only one—and it is hidden. His will, of course, is omni-omni-omni. We suffer it meekly and curse the priests to whom he will not listen—campaigning all the time to replace them with those with more sacred charisma. Oh, great Oikonomia. Only a few, miserable mystics seem to understand—but they’re despised—that you are only housekeeping, which we engage in so that, all in order, we can do what humans are meant to do.

Pyramid Revisited

In an earlier post on the “old” LaMarotte, here, under the title of “What Goes Up, Must Come Down,” I presented a pyramid of the economy. This one:

My argument there was that the economy basically rests on Agriculture, Forestry, Fishing, and Mining—thus on the acquisition of the basic stuff of life. All other activities rest on that foundation. Advanced economic life, and above all urban life, depend on the sectors piled above it—and indeed dependent on the base. I also said that to the extent that any layer depends on its well-being on one above it, to that extent it is also vulnerable to problems that arise there. The example I cited is the dependence of Agriculture on heavy machinery, oil, and financing. Wealth cumulates as we extend the pyramid. And for all things to go well, that which goes up (money) must also come down again. We need a proper circulation of human energies, which, in a way, money represents. Hence a financial meltdown affects all sectors.

In a comment on that post, Monique wrote:

Now, wouldn’t it be interesting to see this pyramid made in such a way that each sector’s importance to the GDP were reflected…? I’ll bet that would turn things on their head!

Well, I thought, that’s a good point. It’s been a while, but now I’ve gotten around to doing it. I’ve constructed the pyramid Monique asked for. Now she is a knowledgeable economics maven, as it were, and she was, of course, right on. The pyramid inverts. The data I used came from this Bureau of Economic Analysis publication, p. 14, for 2010. Here is the graphic:

The bars are proportioned here by each sectoral cluster’s contribution to the Gross Domestic Product measured as Value Added. In this graphic I have added Government, missing from the earlier graphic—where, if I’d drawn it in, it would have been the smallest item and at the very tip.

Government is large because it includes education—public schools at the local and universities at the state level. Some education, privately managed, is in Services. Trade here means Wholesale and Retail Trade. Warehousing ought to be in that sector, but my source puts it in with Transportation and I cannot tease it out. If this chart were based on employment, rather than money, Banking and Finance would be smaller, Trade would be much larger, and the bottom (Ag, Mining) sector would be even smaller than it already is. One of these days I'll post an employment-based pyramid too...

For many decades now I’ve argued that modern economies are inverted pyramids when measured either in money or in employment. Very small numbers of people vitally support the total structure. You might liken it to a child’s spinning top—which only keep right side up because of the whipping—thus the flow of energy, the circulation of money. The most stable, reliable, and lasting economies don’t have much motion. They’re just sitting solidly on the firm base of fundamental human life, close to the earth—with just about everybody engaged in basic activities. And this pyramid shows that as well.

I will end this post as I ended the other. Appropriate, mutually supportive exchange is the guarantee of welfare all around. The Banking and Finance sector accumulates excess wealth. It—or Government—must ensure that it goes down again. If the wealth is spoiled at the top, it will affect the bottom. But when everything fails, we’ll still be hunting and gathering.