Thursday, January 12, 2017

Permanent economic growth is unsustainable

2009 World Economic Forum Meeting
Politicians and economists often tell us that job creation requires a GNP growth above 2 or 3%. According to them, the optimum situation and the end of the crisis will be reached when a permanent growth is achieved above these figures, the higher the better. Not many seem to be considering whether such a situation is possible in the long run.
Let us take the simplest case: assume that it were possible to achieve a cumulative annual growth of 3% GNP, indefinitely continued. Would we have achieved utopia, would we be living in the best of worlds?
Maybe, but not for long.

A simple calculation shows that, with a yearly 3% growth rate, GNP would double in 23 years; would be multiplied by 10 in 78 years; 20 times larger in a century; 100 times in one century and a half; 400 times in two centuries; and 7,100 times larger in three centuries. No natural resources or society can withstand this rate of growth.
Logistic curve
As every mathematician knows, a constant cumulative growth rate gives rise to an exponential curve, but exponential curves are unsustainable. Gordon Moore, famous for his law on the evolution of computer hardware, put it this way in 2003: No exponential is forever. In other words, all exponential growth ends sooner or later by the action of natural causes. All the curves that at first seem like exponential growths, in the end become logistic curves, where growth reaches an inflection point and then slows until reaching a maximum.
Growth of microprocessor clock rates
We have had a more or less positive economic growth for over a century because this growth has been supported by another logistic curve: the increase in world's population, but this surpassed its inflection point around 1985, and is expected to reach its peak during the 21st century. Economic growth has also been supported by a third logistic curve, technological growth, expressed by Moore's law, but this also seems to have gone through its inflection point. To continue the exponential growth, new important technological advances should take place, which is unpredictable.
In Japan, in 2010, after two decades of near zero growth, some politicians and economists sought out novel ways of solving the problem and came up with the following solution: increase consumption and discourage savings by introducing negative interest rates, i.e. charging the customers for saving their money in banks. As this measure could encourage people to save their money at home, cash would be eliminated by forcing all payments to be done by credit card, so that nobody will save and people will spend their salary immediately after collecting it. This solution is also being considered and partially implemented in several countries in the European Union.

I think the authors of these proposals have lost their touch with reality. We need far more revolutionary ideas: we must adapt to a zero growth world, because sooner or later this will happen. For instance, we should devise means of sharing increasingly scarce jobs among everybody.

Manuel Alfonseca

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