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The Economics of Perpetual Growth

Presidio Economics | Monday May 16th, 2011 | 1 Comment

This post is part of a blogging series by economics students at the Presidio Graduate School’s MBA program. You can follow along here.

By Allan Enemark

Can economic growth be sustainably achieved? The short answer appears to be no. At least, not in our economy’s current incarnation. But this question has already been percolating for nearly two decades and its multi-trillion dollar answer indeed requires a great deal of debate. If economic growth is defined by its current measure, an annual increase in gross domestic product, and sustainability is defined broadly as an ability to continue a process indefinitely, perpetual growth seems theoretically possible. But something is missing.

Daly and Townsend’s Valuing the Earth: Economics, Ecology, Ethics, describes economies as contained within the global ecosystem and therefore limited by finite resources of that system. No amount of technological breakthrough or creative accounting can counter that physical fact. With a world population nearly at 7 billion people, reaching the earth’s resource limit is inevitable if it is not already occurring.

Daly and Townsend present a solution to this boundary constraint with the concept of a “steady state economy.” Essentially, given stability in population, renewable and equitable distribution of resources, and a limited use of energy, this steady state society could maintain a high standard of living indefinitely. While reevaluating the dogma of perpetual growth is commendable, the real world feasibility of this vision is dubious. Enacting such dramatic change through a highly centralized governing structure that dictates appropriate resource use, population levels, and actively redistributes wealth is a hard sell even in dire times.

Many critics, such as those at the Mackinac Center for Public Policy in this article, point out that a steady state economy is unnecessary, since world population appears to be stabilizing. Hans Rosling’s has some vivid illustrations of this trend on his site Gapminder. As countries develop and education increases, their birthrates drop. With growing affluence, the cultivation of efficient technologies develop to reduce pollution and waste. In essence, sustainability will naturally result out of growth. Although the trends in developing countries are promising, this polar opposite to Daly and Townsend’s view is unrealistically optimistic.

Most likely a solution lies somewhere in the middle ground between these two arguments. Perpetual economic growth as currently measured cannot be maintained, and basing an entire global economy on this assumption creates massive risk when reaching the limits of our natural systems. But effective, lasting change only comes from within. In that sense, changing our society’s behaviors cannot be achieved through some overseeing organization. Nor can we assume that the status quo will hold in a changing environment. Economies are human creations, and as the expression goes, you get what you measure. So perhaps instead of asking if growth is sustainable, thereby valuing it, we should really be asking what the benefits of growth are and how best to achieve those directly, perpetually.

 

Allan Enemark is an Industrial Designer and currently an MBA candidate at the Presidio Graduate School


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  • http://www.facebook.com/people/Carl-Carlson/640984877 Carl Carlson

    Refreshing to see a discussion of steady state economics but the article’s conclusion is illogical.

    The author suggests that “we should really be asking what the benefits of growth are and how best to achieve those directly, perpetually.” while ignoring that the benefits of growth are likely unique to growth and cannot be replicated in a steady state [zero growth] economy.

    We patently can not reap the benefits of growth absent growth so our efforts should be redirected to answering the question of ‘what is the reality of a steady state economy and how do we implement one before we lose the opportunity window to entropy?’

    Most sincerely,

    Carl