Tim Harford – the ‘Undercover Economist’ – thinks that the economy can grow forever. Here’s why he’s wrong

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Posted Aug 8 2014 by Dave Darby of Lowimpact.org

Here’s an article that I came across recently. It was written by Tim Harford, the ‘Undercover Economist’, who points out that physicists are telling economists that economic growth can’t continue forever because of the exponential function, which is going to cause us extreme problems pretty soon. He says that economists are well aware of the exponential function, and that they are not stupid. They know a way around it. But nothing in his article indicates that they do, or that the whole concept of eternal, perpetual, infinite economic growth is not fundamentally stupid.

To his credit, he mentions the late professor Albert Bartlett, and his wonderful videos that show the dangers of exponential growth – see here. He also points out that any percentage growth, even 0.0000001%, is still exponential growth. That’s a point that most people miss – but he still doesn’t see the danger, because he doesn’t have the wisdom of Professor Bartlett.

His main premise is that an increase in GDP doesn’t have to mean an increase in resource use (including energy), or waste.

Yes it does. Nothing of economic value can be completely free of resource use and waste.

Let me say that again. Nothing of economic value can be completely free of resource use and waste. And because no-one is saying that resource use and waste can grow forever (no-one sane, anyway), then the economy can’t grow forever.

Here’s an explanation.

If you tell your child a bedtime story, it has no economic value, uses no resources and creates no waste. But if you pay someone else £10 to tell your child a bedtime story, that person will then spend that £10 or put it into a bank, and the bank will put it into the economy somehow. There’s no way that that £10 can be ring-fenced so that it doesn’t at some point get spent on something material – something that involves resource use and waste. There is not a single service industry that doesn’t use ‘stuff’ – telephones, buildings, computers; and salaries in the service sector can’t be ring-fenced in the service sector. Service employees will still want that second car, that second home etc.

That’s it really – growth means more spending power, and that extra spending cannot, under any circumstances, be ring-fenced around things that don’t involve resource use and waste – it’s impossible. Everything else is just elaboration on this point. Keeping that in mind, let’s continue anyway.

He mentions New York – the per capita income of New Yorkers is higher than the rest of the US population, but their energy consumption is less. This is entirely due to the fact that people in cities drive less than people in the countryside or in smaller towns. What he fails to see is that energy consumption figures are for the energy consumed in New York – they don’t include energy used for flights in and out of New York, or the energy used in the production and distribution of their electrical goods, clothes, food etc. – most of which come from overseas.

His next point is that per capita energy consumption has not increased in developed countries over the last 25 years – in fact the ‘growth’ has fallen to below zero, even though the economy has grown. Admittedly, he does say: ‘Now this is partly due to offshoring to China – but the offshoring effect just doesn’t seem big enough to explain what is going on.’ Yes it does. Manufacturing has virtually stopped in the UK and other developed countries – it’s all moved to China, India, Brazil and other rapidly-developing countries.

Finally, he says that ‘a bit of extra money will mean I take off the hat and coat and use more energy. But that doesn’t mean that if I win the lottery I will celebrate by boiling myself alive’. He thinks that people can have more money, but not necessarily cause more waste or resource use. That’s completely impossible. Even if you don’t spend more, but keep your money in the bank, that money will be invested and put towards more growth. If he thinks that there is some limit to people’s materialist aspirations, I’d like to mention here that the Sultan of Brunei has gold-plated toilet brushes. There is no limit.

But most importantly, there’s one exponential curve that Harford doesn’t mention at all, and it’s this one:

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Economists just don’t understand ecology – and why should they, if they’re not taught about it? Economics is a subset of ecology, but economists behave as if it’s the other way round.

I’m sure there were people just like Harford on Easter Island, as they cut down the last tree to use as a roller to move a huge stone head into place for their egomaniac chieftans. If we continue to listen to economists, and continue to put the needs of the economy above the needs of ecology, we are headed for Easter-Island-style collapse and probable extinction (we have nowhere else to go, after all). Albert Bartlett was right – we can’t break the laws of physics with our economy.

The more economists try to persuade us that we can have infinite growth on a finite planet, the more they reveal economics to be a dangerously idiotic profession. But I’ve had conversations with economists, and of course they’re not idiots. They’re very good at number crunching (although none of them saw the recent crash coming) – they’re not stupid, they just don’t seem to have much wisdom.