Monday, January 14, 2013

Unlimited growth... why the idea is just silly

I wrote a while back on some of the inconsistencies in the belief -- still professed by many economists -- in the absence of any ultimate limits to economic growth continuing indefinitely into the future. It is my impression that economists generally find such talk irritating, perhaps because the discussion of limits naturally involves considering factors from physics or biology, thereby taking the discussion outside of the realm of pure economics. Peruse the comments on posts such as this one, and you will certainly think that economists tend to look down rather scornfully on anyone so intellectually limited as to take the idea of limits to growth seriously.

But this may be misleading, and I certainly don't want to give the impression that all economists react this way. Indeed, I suspect that there is a rapid change going on in the economics profession and that many economists are busy reassessing earlier views and taking the idea of limits very seriously. Two things to mention here. First, in email correspondence, economist William Brock of the University of Wisconsin suggested to me that many economists do indeed take biologically founded limits to growth seriously and try hard to argue down those who would dismiss them so casually. He mentioned, in particular, the Beijer Institute in Sweden to which he is linked:
"All of us Beijer economists and many (most?) others around the world recognize and worry about the serious limits on economic growth imposed by a finite Earth.  I've noticed in your blog that you comment a lot about economists still preaching unlimited growth, etc.  Beijer economists would sharply disagree and they go after such naive economists. As you can see many of the Beijer Fellows are top dogs in the profession, e.g. Kenneth Arrow not only won the Nobel at an extremely early age but is widely recognized as probably the best economist next to Keynes of this century. Partha Dasgupta is also one of the world's very best economists and has done lots of work with Maler and Arrow on sustainable growth where "growth" is defined sensibly.  GNP is mostly used by politicians and its inadequacies as a sensible measure of "growth" was exposed long long ago, e.g. by Nordhaus and Jim Tobin in their proposed measure promoted in the 70's." 
This is good to hear, and I hope this attitude spreads far and wide. I hope also that young economists in particular will increasingly think for themselves, read widely outside of economics, and get past the naive ideas of unlimited growth as expressed in Paul Romer's endogenous growth theory of 1990 and variations thereof.

On that note, I stumbled this afternoon over this wonderful paper on economic growth by Andrew Sutter, a writer and academic I happened to meet at a conference in Brussels last year. I believe Sutter's background is economics, but he writes beautifully and moves with elegance and ease from physics to classical philosophy to politics and art, and is as fun to read as he is convincing. He also gives a very useful potted history of theories of growth, from which I learned quite a lot. Andrew makes two very general important points.

First, he argues that much of what makes people (and many economists) cling to the idea of unlimited growth has nothing whatsoever to do with science or real insight into how human societies change:
Growth-based policies were born of the need for post-war reconstruction, the ideological struggles of the Cold War, and the need to employ the "baby boom" generation born in the first decade of peace. What's keeping them alive a half-century later, particularly in countries that are already wealthy?

Several factors. The Darwinian struggle played out in GDP "league tables" fits in with the drama of markets and competition that took over our public discourse just as anti-Communism was becoming moot. There is also the conventional wisdom that growth is necessary to maintain pension systems as the Baby Boomers retire (though, just as with other types of government revenue, maybe contributions and collections are more directly relevant). And news about growth, at both the corporate and national levels, supplies shots of optimism and fear to rank-and-file investors in financial markets, allowing the professionals to rake in much more money than is at stake in real goods and services.

More ancient and enduring than all of these is the dream of man's domination of nature. On a practical level, this dream serves the rationales mentioned above: countries compete to be the "most innovative;" "productivity improvements" are sought to allow aging populations to maintain GDP growth; and every technology trend gives birth to new start-ups upon which to gamble. On a mythological level, the dream is both the deus (or at least Titan) ex machina to clean up the messes caused by prior years of growth and technological interventions (e.g., Bush 2002), and an expression of our deepest nature (Phelps 2009).
The second important point Andrew makes is that a deep cause of our trouble to think about growth clearly is the distortion of the concept of value in economics. We've become accustomed to thinking, for example, that innovation is by its nature good; this is at least how it is measured in GDP. Medicines for children? Automatic weapons for dictators? Doesn't matter: both count positively towards GDP. We have more or less ceased talking seriously about the differences between good and bad innovations. But of course some innovations are better than others, regardless of how crude measures such as GDP may tally up their value. Andrew in his paper suggests how we might start growing a different perspective, derived in part from ideas going back to Aristotle. Absolutely brilliant. Have a read.