Center for the Advancement of the Steady State Economy
Regular Contributors:  Herman Daly, Brian Czech, Brent Blackwelder, James Magnus-Johnston, and Eric Zencey. Guest authors by invitation.

Print This Post Print This Post

Limits to Growth – of Stuff, Value, and GDP

by Brian Czech

I’m starting to think that perpetual growth notions are the Achilles heel of the human brain. They pop up like munchkins on a Whac-a-Mole machine. You smash one and up come two.

A recent example comes from Tim Worstall, a business and technology writer for Forbes. Like the long lineage of Homo polyannas before him, he assures his poor readers that we can have perpetually growing GDP without using more resources. He uses a variety of the old “growth is more value, not stuff” argument.

Worstall says, “It really is true that as value increases we have economic growth. And how are we determining that value? Through the market prices that people are willing to pay for them. And what is the determinant of that? Well, actually, it’s us. Our own often arbitrary and always subjective estimations of what something is worth to us. Which isn’t, as I hope can be seen, something that is bounded by any physical limit at all.”

Now I don’t know about you, but when someone is compelled to announce, “It really is true,” my “Prove It” flag pops up. And sure enough, Mr. Worstall has a lot to prove.

For starters, just exactly what evidence does Mr. Worstall have to support his notion that our estimations of value are unbounded? I don’t recall having or hearing of an experience where something just seemed to increase in value more, more yet, and forevermore. Do you? Now it may have seemed that way for some short period of time with something like coffee. But unless you’re moving into ecstasy ad nauseum – an oxymoron if there ever was one – the value of the experience was bounded. Right?

Why can’t Worstall and the perpetual growthers just face it with the rest of us: life is all about limits. Life, death, taxes, and limits. What’s wrong with limits, anyway? If there weren’t any, what value would a certain level of progress or satisfaction have? How would you measure it?

Now sure, you might “value” living more as you get closer to dying. You might try to measure this value and say, “I’m twice as concerned with living now.” You might even spend twice as much money on health food. That’s fine and understandable, but it’s not economic growth. If you spent more on health food, you had less to spend on coffee, chiropractic, or bingo at the Elks Club.

That brings us to an even bigger burden of proof begged by Mr. Worstall. The main point of his article is that all this ever-increasing appreciation or satisfaction or happiness, which requires not one jot or tittle of energy or material, will result in GDP growth! This, he lectures the scientists, is really what GDP growth is all about: increasing value, where value may increase without increasing use of energy and material.

Where’s the proof? Have we ever seen GDP increase without increasing use of energy and material? If the Worstalls of the world would only put their money where their mouths were, we could cap energy and material flows and test their hypothesis. But no, their mouths are preoccupied with perpetual growth slogans like “drill baby drill!”

But just for the sake of argument, let’s say we can wave a magic wand or a hypnosis gismo and have ever-growing value without the use of more energy and materials. All of a sudden, bread tastes better, suits look spiffier, hymns even sound holier. And that’s without using more energy or material. It’s all in the mind, you see.

So we spend more on it? Thus increasing GDP?

Prove it.

While the Worstalls of the world are busy with an exercise in futility, the rest of us can think about something more evident. Where does the money come from to spend on things of value? As Adam Smith noted in the Wealth of Nations, money originates when there is agricultural and extractive surplus. With agricultural surplus, not everyone has to farm. That frees the hands for the division of labor and the generation of real money to be spent on a variety of goods and services. Agricultural surplus is the physical basis of money and market expenditures.

Oh sure, we can double the supply of money overnight if we really want to. If we all wake up one morning insisting that we value everything twice as much, why not double the money supply to account for it? But that’s not growth in real GDP. It’s mental and monetary only. The mental part is fine — a nice mood at the least — but the monetary part is called inflation!

The foundation of the real human economy is the producers. Only with surplus production will there be expenditures on consumption. Growing GDP takes more surplus production. Such are the trophic origins of money, in ecological terms. But as Worstall said, “when extremely bright people step off their own knowledge base they can make very interesting mistakes when they attempt to explore other fields.” I don’t know if Worstall is extremely bright or not, but he obviously isn’t conversant with ecology, also known as the economy of nature. That sets him up poorly for economic matters. If you don’t get the basics of the real sector, you can make a real mess of the monetary sector.

If anyone still views this as an argument, maybe we can settle it democratically. After all, it seems that plenty of folks value democracy, so the more democratic the approach, the more valuable it should be (within limits, I’d say). So let’s take a vote. What do readers think is more feasible: Ever-growing satisfaction and ever-growing GDP with no additional stuff? Or declining satisfaction and declining GDP as the supply of stuff declines?

I’d like to hear your thoughts. I do value your opinion. But whether you give it or not, I won’t be spending a dime on it. GDP will just have to sit there.

15 Responses to “Limits to Growth – of Stuff, Value, and GDP”

  1. Tim Worstall says:

    So, let’s start at the beginning then. With some definitions.

    GDP is the value at market prices of all goods and services produced in the economy.

    When we say “economic growth” we usually mean and increase in GDP.

    Are we agreed on those two propositions?

    Good.

    So, I agree absolutely that there are some physical limits to economic growth. Clearly we cannot use more copper atoms to make stuff than there are copper atoms to make stuff out of. So there is a limit to the volume of goods we can make out of copper. You can substitute any other physical good for copper there.

    I’ve no problem at all with agreeing that at the extremes there are just such physical limits to economic growth. I do often argue about how close we are to them but happy with the logic that the limits exist.

    So, does that mean that we cannot have ever increasing economic growth? No, it doesn’t, for we can have changes in the value of what is produced from those limited resources.

    What usually changes those values is not that we change our mind about the value of what is already produced, as you imply above. Rather, technology advances and we find that we can make something new which we value more from those limited resouces.

    To take an extreme example just to illustrate the logic. Imagine that all we did with copper was make paperweights with it. Then we worked out how to make computer motherboards from copper, as we have in fact done. OK, so we use our limited stock of copper (and this could be truly limited as well, could be just the recycling of what we have already abstracted from the environment) to make motherboards instead of paperweights.

    We value the computers more than the paperweights: we’ve had an increase in economic growth, an increase in the value of goods and services produced without having an increase is resource use or abstraction from the environment.

    Therefore resource use, while it is a limit upon economic growth is not the binding limit upon it.

    And I would note that the greenest of green ecological economists, Herman Daly himself, agrees with me on this. For the distinction I’ve just made is his own distinction between quantitative growth and qualitative growth. I’ve just used the standard economic terms for them rather than inventing new ones as Daly does.

    Sure, there’s limits to quantitative economic growth. But there are no obvious ones to qualitative economic growth. And as GDP, economic growth as normally understood, incorporates both qualitative and quantitative growth, resource limits are, again, not the binding constraint upon economic growth.

  2. Dougie Fresh says:

    It appears to me that one of the primary opportunities for economic “growth” would be an increase in services. I wouldn’t argue that these opportunities are limitless, however. One can imagine paying another to do all that one does for one’s self, and in fact there are many things we pay to have done today that we would have done for ourselves in the past. For example, counseling services that are reported in GDP in today’s world might have been provided by family and social networks in the past. Clearly many opportunities exist for us to expand the list of services that we no longer do for ourselves, but pay another to do for us.

    Clearly this begs the question of whether or not this is any sort of growth that relates to an increase in welfare. I might pay my neighbor to brush my teeth for me so that I can continue writing this comment. In turn, later my neighbor might pay me to brush her teeth while she formats her dissertation. Assuming we report these exchanges to the government, have we not increased GDP? The resource cost of trips to each other’s adjacent house might even be considered non-additional if we set goals for ourselves to walk a certain distance every day, thus no increase in CO2 emissions due to respiration, etc. Is there an increase in welfare? Trivial scenarios such as this abound, but many things we have trouble imagining another do for us today could become commonly paid for services in the future.

    Just look in the news and see that google has folks verifying their human-ness by typing in blurry numbers that they attempt to recognize, which can be used via crowd-sourcing to both verify an individual’s human-ness and also to figure out the street address that a computer had difficulty with. Google uses gobs of electricity, so clearly this example can be expected to lead to an increase in our utilization of scarce resources.

    Ultimately, I wouldn’t try to argue that these opportunities are unconstrained, and most opportunities to exchange more and more services seem likely to be associated with a net increase in resource use.

  3. Jim Sinner says:

    Brian – Your acerbic tone does your argument only harm. Ok, so GDP growth ad infinitum is impossible, but there is surely considerable potential “growth” that could be realised by increasing value rather than stuff, while human society weans itself off the growth addiction.

    Put your alternative proposition to a democratic vote: “declining satisfaction and declining GDP as the supply of stuff declines”. You might get a majority of the converted (i.e. readers of this blog) but you won’t get a majority in any democratic society. Are you promoting a steady state economy, or a declining one? Your arguments suggest that only the latter is possible or desirable.

    There is plenty of potential for increasing satisfaction – viz all the wars, famines and environmental degradation to be overcome – so let’s adopt the vision of increasing satisfaction and steady state or slowly growing GDP based on more value and less stuff – that should do for the next 50 years.

  4. Max Kummerow says:

    Nobody talked about “utility” the thing we are supposed to be maximizing. Economists reason in circular fashion on this one, I think because what we are willing to pay measures utility and utility explains willingness to pay. All we observe is willingness to pay in the economy. Neuro-scientists are starting to hook our brains up and get things to light up in pleasure centers. I think the whole notion of utility maximization already makes a serious mistake. (Was at a heterodox economist’s session once at ASSA where somebody said as soon as an economist opens his mouth and uses words like utility and demand he’s already talking nonsense.)

    I think we would do better to start with biological perspective and talk about, first our physical and social needs–food, shelter, sex, companionship, security, stuff like that. Then maybe about the kinds of things humans enjoy like variety, beauty, torturing other humans, etc. Then we could start to talk about collective well-being, utility offered by public goods, benefits of equality a la the Spirit Level, and so on. And how heavy traffic is stressful and reduces out lifespans. Also eating too much. And how too much material stuff and energy use damages long term carrying capacity of the planet. And makes future lives more miserable. And then we could start to talk about ethics, economics and ecology and try to link them all up into some kind of coherent view of what an economy ought to try to accomplish. I doubt, in the long run, that the goal should be growth–the ideology of a cancer cell.

  5. Sandwichman says:

    Tim would be absolutely right IF the economy was a multi-player game the agreed objective of which was solely to keep the economy growing. However, back in the real, capitalist world there are several other complicating factors besides the physical limit of resources.

    One of them is motivation. If the economy was to generate “universal sufficiency” what would stop an increasingly large proportion of the population from saying, “Enough!”? Of course the economy is structured to NOT achieve universal sufficiency, so we don’t have to worry about that, do we? The economy can grow and grow and grow and still retain plenty of poverty. Thank God!

    Another complicating factor is the linkage between wants and purchasing power. There has to be some kind of a transmission belt between those who make the goods and provide the services and those who consume them. And, of course at least some portion of the purchasing power has to be in the hands of the producers themselves. But, since the technology constantly changes, so must the transmission belt continuously change.

    The credit system supplies the necessary slack in that metaphorical transmission belt but also serves to concentrate assets (and therefore income) over time. Let us just say that this tension between the expansionary function of the credit system and its inevitable concentrating tendency engenders periodic crises. Recall there was just one that started four years ago. Oh, but we can be sure there will never be another!

    It is thus in a crisis-prone, technologically-driven and motivationally-challenged world that growth — or some alternative to growth — must occur, not in some econo-nerd’s multi-player role playing game. In that real world, the limitations of natural resources are not finessed by some feat of dematerialization for a very, very simple and obvious reason — people can get their dematerialization jollies OUTSIDE of the money economy rather easily; it’s only the physical material throughput fixes that bind them to that money economy.

    Whatcha gonna do, Tim? Make it impossible for people to seek their dematerialized utility outside of the formal economy? Or maybe just convince everyone its all a game and the object of the game is to keep the economy growing. Period.

  6. Sandwichman says:

    For a less flippant and more comprehensive discussion of the arguments underlying my above comment, please see the blog post: “Further Thoughts on the Use of Machines” a statistical science fiction.”

    tinyurl.com/statscifi

  7. Roger says:

    I have no idea what the future holds, but there are no physical limitations on qualitative improvements. Tim is 100% correct.

    Some various thoughts.

    The original discussion was started by a fictional discussion between a physicist and an economist, where the physicist proves that energy cannot grow exponentially forever (agreed) and that therefore growth some in the future will need to be different than in the past (agreed).

    GDP may be an inadequate measure of future utility growth. As we meet human needs not just better but more efficiently, it seems that real growth will be increasingly understated. I could be wrong here though.

    It is easy to provide examples of improving utility at immense savings of energy or resources. Here is just one. A hundred and fifty years ago a rural person in Arizona wanting to hear Beethovens fourth symphony would have to spend weeks in travel and lost wages going to New York or London to hear a performance. The energy, time, cost and inefficiency is simply mind boggling. Today he downloads it for a few bucks or borrows the CD for free from the library.

    Brian, if you are suggesting that there is some unknown physical force or principle that limits qualitative improvement at a given level of resource, I suggest you name it. Thermodynamics does not limit quality improvement. There is no law of conservation of value.

  8. John deChadenedes says:

    I”m going to vote for “Ever-growing satisfaction combined with zero growth in GDP and no additional stuff”, please. (I realize this wasn’t one of the options but I think it is close to being a description of a well-run steady state economy.)

    Mr. Worstall’s example of copper paperweights being recycled into computer motherboards is misleading at best. Let’s take a different example, not too farfetched, of corn and vehicle fuel. Imagine that corn processed into ethanol and mixed with gasoline turns out to be valued more highly (i.e., has a higher market price) than corn used simply as food. In this hypothetical scenario there are over a billion people in the world without enough food, but since they don’t have money to buy this corn, we’ll just go ahead and turn it into fuel. GDP is up, satisfaction of vehicle owners is up (assuming they don’t know much about the downside of gasoline with alcohol added to it), and no more resources have been used! Amazing.

    But what about the billion people who are still starving?

  9. Nick Palmer says:

    If the commenters above tried redefining increases in perceived value, which have been achieved by a decoupling from growth in energy and resource use, as “development” (not growth), a lot of the bickering would reduce.

  10. Tim Worstall says:

    “Let’s take a different example, not too farfetched, of corn and vehicle fuel. Imagine that corn processed into ethanol and mixed with gasoline turns out to be valued more highly (i.e., has a higher market price) than corn used simply as food. In this hypothetical scenario there are over a billion people in the world without enough food, but since they don’t have money to buy this corn, we’ll just go ahead and turn it into fuel.”

    That’s an example, sure, but it’s a different example. That’s talking about the distribution. And we all know that GDP doesn’t measure distrobution: this was something pointed out by the inventor of GDP, Simon Kuznets. So your example is like saying that GDP dopesn’t measure the cuteness of kittens. Quite true but irrelevant to the point under discussion.

    “I have no idea what the future holds, but there are no physical limitations on qualitative improvements. Tim is 100% correct.”

    Thank you.

  11. Herman Daly says:

    Regarding Tim Worstall and others, let me repeat the last paragraph from my March 4 essay (at a policy level, as Brian suggested, we should agree–do we?):

    “Finally, I eagerly submit that even if we limit quantitative physical throughput (growth) it should still be possible to experience qualitative improvement (development) thanks to technological advance and to ethical improvement of our priorities. I think therefore we should urge policies to limit the quantitative growth of throughput, thereby raising resource prices, in order to increase resource efficiency, to force the path of progress from growth to development, from bigger to better, and to stop the present folly of continuing uneconomic growth. A policy of quantitative limits on throughput (cap-auction-trade) will also block the erosion of initial resource savings resulting from efficiency improvements (the rebound effect or Jevons paradox). In addition the auction will raise much revenue and make it possible to tax value added (labor and capital) less because in effect we will have shifted the tax base to resource throughput. Value added is a good, so stop taxing it. Depletion and pollution, the two ends of the throughput, are bads, so tax them. If you are a technological optimist please have the courage of your convictions and join us in advocating policies that give incentive to the resource-saving technologies that you believe are within easy reach. You may be right — I hope you are. Let’s find out. If you turn out to be wrong, there is really no downside, because it was still necessary to limit throughput to avoid uneconomic growth.”

    Also have another look at the March 18 essay by David Jones. As for GDP, it is a better index of throughput than of welfare, but but a faulty index of both.

  12. Torrey Byles says:

    There has got to be a more concise answer to the question that Mr. Czech raises. It hasn’t been stated yet, unfortunately. I’d like to have it down — as in etched in the back of my forehead — because this is the issue of our times. Can you have an endlessly growing nominal output (and income) even if physical throughput remains constant or is declining?

  13. Tim Worstall says:

    “Can you have an endlessly growing nominal output (and income) even if physical throughput remains constant or is declining?”

    That’s exactly the point at issue. I and Professor Daly say yes. Mr. Czech seems to say no. My argument is that Mr. Czech is saying this simply because he’s not understood the argument that Professor Daly is advancing.

    If we assume that technology continues to advance then yes, that continual increase is possible. If you assume both the quantitative limits on resource use and also that technology stagnates, then no.

    As so often the answer is dependent on your starting assumptions.

  14. Tim Worstall says:

    “As for GDP, it is a better index of throughput than of welfare, but but a faulty index of both.”

    Entirely agreed. It is a faulty index but it is the one we’ve got and use. And, given all of the above, I hope we agree that continual qualitative improvement as technology advances would indeed be an increase in GDP?

    Thus, my main and basic point is validated. Resource constraints are constraints upon rising GDP, yes, for they restrict quantitative growth. However, they are not a binding constraint upon GDP growth as quantitative improvement is still possible and GDP, however imperfectly, does indeed grow with such qualitative improvement.

    Thus we are all Boulding’s economists and madmen, believing that infinite economic growth in a finite planet is indeed possible.

    “A policy of quantitative limits on throughput (cap-auction-trade) will also block the erosion of initial resource savings resulting from efficiency improvements (the rebound effect or Jevons paradox). In addition the auction will raise much revenue and make it possible to tax value added (labor and capital) less because in effect we will have shifted the tax base to resource throughput. Value added is a good, so stop taxing it. Depletion and pollution, the two ends of the throughput, are bads, so tax them. If you are a technological optimist please have the courage of your convictions and join us in advocating policies that give incentive to the resource-saving technologies that you believe are within easy reach. You may be right — I hope you are. Let’s find out.”

    With a couple of caveats. I prefer Pigou Taxes to cap and trade but that’s a minor point (my preference stems more from my cynicism about the political process in the setting of caps more than anything else).

    The second is more important. Such caps or taxes seem only justified when there is some externality which is curently not being addressed. I certainly support carbon taxes/cap and trade. The atmosphere and the climate is just one such externality not currently captured in market prices.

    But what externality is not captured in, say, the use of copper currently? Or tellurium, iron? Given that this is the field my day job is in (and the weirder the metal the more I’ll know about it) I’d be fascinated to find out what anyone thinks is currently an externality in, say, production of gallium, germanium and indium.

    Just as an example, there’s a roughly million year supply of gallium in the bauxite that we already process for aluminium. Yes, we know how to extract it too. So what would be the justification for a cap and trade, or Pigou Tax, on the use or extraction of gallium?

  15. Nick Palmer says:

    I repeat my comment above:

    “If the commenters above tried redefining increases in perceived value, which have been achieved by a decoupling from growth in energy and resource use, as “development” (not growth), a lot of the bickering would reduce”

    The reason I repeat it, and think it worthwhile, is because Tim W, Herman D and Brian C are really not that far apart when communicating amongst themselves but if their writings were shown to the economic and political movers and shakers they would only see the word growth to mean what it has always meant to them since Victor Lebows famous 50s exhortation that:

    “We need things consumed, burned up, worn out, replaced, and discarded at an ever increasing pace. We need to have people eat, drink, dress, ride, live, with ever more complicated and, therefore, constantly more expensive consumption”

    Politicians, policy makers, financiers and run of the mill economists, not to forget the man in the street, hear “growth” and Lebow’s quantitative vision flashes through their minds. That is what they have grown up understanding growth as; so no matter how Tim and his ilk qualify their ideas, the average listener just won’t get it.

    If we conscientiously publicly substitute the word “development” for the process of qualitative growth without quantitative material/energy/resources growth then maybe the powers that be, and the mass of the public who follow them, will be able to more easily differentiate between the two concepts.