Limited resources and economic growth

[luiz]

I think it's a good idea to discuss this topic since it is frequently argued in this forum, by people of the most diverse political inclinations, that the objective fact that physical resources are limited means there is a real constraint on how much the global economy can grow. People who believe in this usually conclude that for one group nations to be rich another must be poor; as the pie is limited we must fight for its slices. I'd like to hear a more qualified explanation of why it is so in their opinion.

Here's my take:
While resources are obviously limited, what we can do with them is not. One liter of oil will get us much further in 2011 than 1920; one acre of land will produce much more food. The return we get from a fixed amount of resources is always growing as our technical progress advances. This is point number one.

Point number two is that we're not even close to fully utilizing all resources at our disposal, and won't be as far as imaginable. We're only using a negligible amount of the total solar energy that hits the Earth (because today it's cheaper to burn oil); but no doubt in the future we could have giant orbiting solar pannels. The potential of fusion power hasn't been tapped yet, but I have no doubt it will at some point in this century. We're quickly heading to a world where most people will live as the western middle class does.

So there's no reason why we can't go on growing our economies for as long as we can imagine. Note that I am not offering any original or insightful thought here; I am merely stating the mainstream opinion.

Now it's time for those who disagree with me say where they think I went wrong.

 

[bathsheba666]

I was under the impression that the western middle class was becoming relatively smaller and poorer, and this was partly by design by the owners of capital.

What we can do with resources, such as land, may be improvable, but this may itself rely on the use of other resources, chemicals, rare earths, that are themselves limited.

That, in general, is why I am sceptical of your optimistic outlook.

 

[Hehehe]

Immaterial wealth (digital content) might be one answer to this problem. Though not even digital content allows economy to grow infinitely.

 

[Ayn Rand]

It depends what you mean by economic growth. Our ability to provide valued goods and services to one another is not driven simply by resource availability. If knowledge, market sophistication, productivity etc all keep improving then it should in theory be possible to keep on increasing the value of the services we provide to one another through the markets - even if we reach a barrier in the mass of physical goods we can produce.

I share your optimism with regard to resource limits, but that in itself does not guarantee growth because of the complex array of other threats and problems we face and need to deal with.

 

[El_Machinae]

I agree with the majority of your thesis, and so I'll just fine-tune a couple of ideas.

The problem is when we become psychologically addicted to a growth rate that's not sustainable. And the second problem is that some resource consumption can happen at non-sustainable rates. This leads to the illusion of a certain rate of growth that would then lead to a crash. And so, the eventual crash will reduce the growth rate below what we call 'comfortable' and may even make it negative for a period of time.

An imaginary example is fishing. If I invented a technology that doubled our ability to harvest ocean fish, then economic growth would increase a great deal. At least, until peak fish was crossed. At that point, it's a hard question to compare the growth rate vs. today's 'normal fish' rate. But, regardless, the growth rate will go down as the number of fish available to market goes down.

So, the growth has an S-curve. The total human growth rate needn't go down, but the growth rate from exploiting resources will go down. This is mainly a problem (psychologically at least) if the resources could've been used sustainably, because if we'd used them sustainably, there'd not be the decrease in growth due to over-exploitation.

And, to continue to agree with your thesis, this means that we can manage CO2 and not actually risk increased economic growth.

We can get actually wealthier while decreasing the risk of unsustainable use of our CO2 'buffer'.

 

[Kozmos]

Plant more trees: http://www.dawn.com/2011/10/19/turning-wood-into-oil-in-two-simple-steps.html

 

[Crezth]

I thought mercantilism was long dead. Do people actually think that economic growth = resources => limited?

 

[luiz]

I was under the impression that the western middle class was becoming relatively smaller and poorer, and this was partly by design by the owners of capital.

It may be in recent years, but certainly not for lack of physical resources!
The middle class of much of the developing world is booming in size and purchasing power, though.

What we can do with resources, such as land, may be improvable, but this may itself rely on the use of other resources, chemicals, rare earths, that are themselves limited.

That, in general, is why I am sceptical of your optimistic outlook.

But even what we can do with limited resources such as chemicals and rare earths has increased dramatically.

It depends what you mean by economic growth. Our ability to provide valued goods and services to one another is not driven simply by resource availability. If knowledge, market sophistication, productivity etc all keep improving then it should in theory be possible to keep on increasing the value of the services we provide to one another through the markets - even if we reach a barrier in the mass of physical goods we can produce.

I share your optimism with regard to resource limits, but that in itself does not guarantee growth because of the complex array of other threats and problems we face and need to deal with.

My point was merely related to physical resources posing a technical barrier to progress. Naturally there are many other barriers; there is no guarantee of a bright future. We might screw up in several different ways.

I thought mercantilism was long dead. Do people actually think that economic growth = resources => limited?

Read what some people post here... you'd be surprised.

@El_Machinae: I entirely agree. The fact that resources don't pose a limit to economic growth does not mean that we can't mishandle them in a way that does. We could definitely overfish, leading to the collapse of some commercially important species, and that would have an adverse effect on economic growth. The most important point is that it doesn't have to be that way; we could fish at susteinable levels and increase fish consumption through fish farms or whatever other technique.

 

[innonimatu]

The fact that resources don't pose a limit to economic growth

Yes they do. There is always only so much you can do with any resource, unless you thing that selling it faster and faster between two people is "economic growth".

We don't know what the hard limits to overall growth are, sure, but we do know that it's not infinity. Despite your disclaimers your point comes across as if you believed that it might be.

 

[Pangur Bán]

All sorts of issues. Extent of finite resources doesn't matter so much as their location and who needs to be persuaded to give what for what price to whom. Secondly, relevant technological changes are being easily outstripped by population growth and the "economic growth" already improverishing more people today. Thirdly, certain goods that mark status will always be confined to limited numbers because that is their whole point. Fourthly, power in the world will never be equally distributed; even if it were potentially possible to have US middle class livestyles everywhere, it wouldn't happen because stronger groups will always enrich themselves at the expense of those below them. Fifthly,US middle class livestyles are dependent on exploitation of many millions more of the world's poorest. Their livestyles are only possible, as things stand and will stand for a long time, on the existence and exploitation of poorer people elsewhere.

 

[Tahuti]

Secondly, relevant technological changes are being easily outstripped by population growth and the "economic growth" already improverishing more people today.

Actually, the population growth in poor countries is because of technological progress. Without these technological breakthroughs, most would have seen their lives claimed by diseases or food shortages.

 

[innonimatu]

Actually, the population growth in poor countries is because of technological progress. Without these technological breakthroughs, most would have seen their lives claimed by diseases or food shortages.

Good point, at least if we assume that the populations of all those poor countries were already living near subsistence levels to start with.

 

[Pangur Bán]

Actually, the population growth in poor countries is because of technological progress. Without these technological breakthroughs, most would have seen their lives claimed by diseases or food shortages.

Population growth comes from increases in food production, which it is true comes in part from technological progress in food production as well as abandonment of traditional balanced attitudes to land use, decreased warfare, and so on, and increased ability to penetrate lands traditionally unused for agriculture. This does not come however with better technology in other aspects of life, and indeed already makes people poorer in regard to these.

 

[Crezth]

Yes they do. There is always only so much you can do with any resource, unless you thing that selling it faster and faster between two people is "economic growth".

We don't know what the hard limits to overall growth are, sure, but we do know that it's not infinity. Despite your disclaimers your point comes across as if you believed that it might be.

How can this possibly be the case with fiat currency, investing, and sustainability options?

 

[luiz]

Yes they do. There is always only so much you can do with any resource, unless you thing that selling it faster and faster between two people is "economic growth".

We don't know what the hard limits to overall growth are, sure, but we do know that it's not infinity. Despite your disclaimers your point comes across as if you believed that it might be.

We don't know and we don't see any limits ahead of us as far resources go.

All sorts of issues. Extent of finite resources doesn't matter so much as their location and who needs to be persuaded to give what for what price to whom. Secondly, relevant technological changes are being easily outstripped by population growth and the "economic growth" already improverishing more people today. Thirdly, certain goods that mark status will always be confined to limited numbers because that is their whole point. Fourthly, power in the world will never be equally distributed; even if it were potentially possible to have US middle class livestyles everywhere, it wouldn't happen because stronger groups will always enrich themselves at the expense of those below them. Fifthly,US middle class livestyles are dependent on exploitation of many millions more of the world's poorest. Their livestyles are only possible, as things stand and will stand for a long time, on the existence and exploitation of poorer people elsewhere.

Lots of points, I'll try to address them one by one.
1- No argument there. Some countries wil continue to have power due to control of key resources. That's a bit besides the topic, though.
2-No, they are not. Technical progress is actually outstripping population growth (which is falling fastly anyway), which is why the average human is getting richer, not poorer. This malthusian view simply does not correspond to reality.
3-Sure, but that does not limit economic growth. I am not saying we are heading to paradise on Earth (I don't believe that for a momement), I am saying resources don't pose a limit on economic growth.
4-There will always be unequal distribution, yes (both domestically and internationally). But I don't see why anyone would try to prevent the emergence of a global middle class society.
5- You'll have to expand here. Who is being exploited so that the US can maintain their middle class lifestyle? The Asians that manufacture cheap goods and have moved in a few decades from the middle ages quickly towards a modern and prosperous society?

 

[Integral]

All sorts of issues. Extent of finite resources doesn't matter so much as their location and who needs to be persuaded to give what for what price to whom. Secondly, relevant technological changes are being easily outstripped by population growth and the "economic growth" already improverishing more people today.

If that were true, income per capita would be falling. However:

Your move.

A smaller percentage of the world lives in absolute poverty now than in any time in history. Primarily this is because everyone was poor not three hundred years ago.

Thirdly, certain goods that mark status will always be confined to limited numbers because that is their whole point.

Sure, but "status goods" aren't really relevant here.

Fourthly, power in the world will never be equally distributed; even if it were potentially possible to have US middle class livestyles everywhere, it wouldn't happen because stronger groups will always enrich themselves at the expense of those below them.

Equality of distribution is also not relevant. What's relevant is absolute living standards, and those are clearly going up for about 5-6 of the 7 billion people on this planet. There is a group being left behind and I don't mean to downplay the difficulty of economic development; but economic growth is not the zero-sum game you imply it is.

Fifthly,US middle class livestyles are dependent on exploitation of many millions more of the world's poorest. Their livestyles are only possible, as things stand and will stand for a long time, on the existence and exploitation of poorer people elsewhere.

Really? I mean, US middle-class lifestyles are dependent on manufactured goods in China. Sure. But Chinese income per capita's increased dramatically since 1980 and they're almost certainly better off from the whole experience.


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Edit: El_Mac had a good post. I would subscribe to your newsletter.

 

[El_Machinae]

2-No, they are not. Technical progress is actually outstripping population growth (which is falling fastly anyway), which is why the average human is getting richer, not poorer. This malthusian view simply does not correspond to reality.

That could be true, but it needn't be. Humans are getting richer, but I think it's obvious that some of our consumption is based on overconsumption of renewable resources in a non-sustainable way.

In my example of "double fishing capability" the average human would get richer from year to year, too. Until that boost in growth stopped (and with the risk of a reversal). A lot of our consumption really does look like it's partially nonsustainable, so the growth that we're experiencing is (at the very best) a temporary boost. We don't know how much of 'everyone is getting richer' is part of the nonsustainable consumption.

What's also interesting in your thesis is that the economic value of a resource grows over time (due to innovation). IF a resource has a sustainable and non-sustainable portion (for example the excess capacity of an aquifer in addition to its natural refreshing rate), then holding off the nonsustainable consumption is actually a way of increasing its future value. You cannot really get upset at 'environmentalists' because if they're wrong, their delay in the harvesting of a resource merely increases the value that we'd get from it. The aquifer should obviously be drawn down at the rate that it replenishes, but the value of those extra barrels increases over time.

Additionally, if we limit the draw-down on the aquifer to 'replacement value only', we can still be assured that we'll get economic growth from that water, by increasing the utility of the water each year.

 

[Pangur Bán]

If that were true, income per capita would be falling. However:

Your move.

A smaller percentage of the world lives in absolute poverty now than in any time in history. Primarily this is because everyone was poor not three hundred years ago.

"Absolute poverty" didn't exist until fairly recently, as it is a modern invention. In real terms GDP per capita fell in Africa during the 80s and most of the 90s, despite growing wealth among urban elites. But wealth is not about how much wealth a person has when divided by the grand total of everyone in your country measured in some currency, and if it is measured as such is completely meaningless for our subject. Many modern third world populations are experiencing declining access to clean water, poorer living conditions, increased vulnerability to famine, poorer security of land tenure, lower income relative to oil prices, etc, etc, while seeing available leisure time plummet.

Equality of distribution is also not relevant. What's relevant is absolute living standards, and those are clearly going up for about 5-6 of the 7 billion people on this planet. There is a group being left behind and I don't mean to downplay the difficulty of economic development; but economic growth is not the zero-sum game you imply it is..

Not implying it to be zero sum ... not intentionally. If you look at luiz's OP, the topic is whether everyone can obtain US middle class life-styles.

Really? I mean, US middle-class lifestyles are dependent on manufactured goods in China. Sure. But Chinese income per capita's increased dramatically since 1980 and they're almost certainly better off from the whole experience.

So, the lifestyles in question are supported by privileged access to economic resources, control of the most valuable services in the economic chain, use of the dollar, etc, etc, ... cash crop farmers all around the world pump cheap products into Western economies being paid a fraction of the amount exactly the same work wouild be paid in their own territories.

 

[Pangur Bán]

1- No argument there. Some countries wil continue to have power due to control of key resources. That's a bit besides the topic, though.

Of course it's not. This is key to the topic. If one country or group has something others need, it can "charge" more for it ... thus impoverish others relative to itself.

2-No, they are not. Technical progress is actually outstripping population growth (which is falling fastly anyway), which is why the average human is getting richer, not poorer. This malthusian view simply does not correspond to reality.

If you say so. When I was talking about technology being outstripped by population growth, I meant in relation to critical sources of "wealth" like energy provision. The reality is, oil prices are rising and those who have it are getting richer at the expense of those who don't, and oil production is not rising to keep pace with population rises. Neither is any substitute new technology.

3-Sure, but that does not limit economic growth. I am not saying we are heading to paradise on Earth (I don't believe that for a momement), I am saying resources don't pose a limit on economic growth.

People are a bit brain-washed by economic jargon and divorced from reality sometimes. The present US and Western Middle class, as well as being a middle class in the West, is an upper class in terms of the world. I.e. they occupy a place close to the top in relative world wealth. In certain respects, only they by defition can have access to certain components of wealth.

4-There will always be unequal distribution, yes (both domestically and internationally). But I don't see why anyone would try to prevent the emergence of a global middle class society.

If you can divert wealth from them to yourself, by lower wages for instance, you will.

5- You'll have to expand here. Who is being exploited so that the US can maintain their middle class lifestyle? The Asians that manufacture cheap goods and have moved in a few decades from the middle ages quickly towards a modern and prosperous society?

There is a difference in some people getting richer and everyone everywhere reaching US middle class lifestyles. But it is notable that the US middle class is already shrinking due to many of their jobs going over to the Chinese.

 

[Tahuti]

So, the lifestyles in question are supported by privileged access to economic resources, control of the most valuable services in the economic chain, use of the dollar, etc, etc, ... cash crop farmers all around the world pump cheap products into Western economies being paid a fraction of the amount exactly the same work wouild be paid in their own territories.

The main reason why it doesn't happen in our "own" territories. Though it is often overstated how easy it would to reverse this, even without resorting to protectionism: In the event of peak oil or stringent restrictions to the use of oil to prepare for just that, transportation costs may rise so high that outsourcing is no longer worthwhile. Contractionary monetary policies do the same thing by stimulating investment, which are also the reason why Northern European countries are net-exporters.

When industrial sectors return to the West because of protectionism, peak oil or tight monetary policies, a slight drop in living standards is inevitable. Slight, but not drastic.