On (un)sustainable economic growth, Dick Smith and all that

The well-respected philosopher and writer, who shall be known as David, is siding with Dick Smith on the growth argument. Dunno, TH reckons that he and David are not particularly far apart in terms of thinking on this one, but seem to come to different conclusions. For example, TH points to the (albeit technical) Easter Island piece on by James Brander and Scott Taylor, which argues that with quite sensible assumptions economic incentives can lead to over exploitation of natural resources and eventually economic and social collapse. The Brander and Taylor model provides an economic model to explain how this happens, and also a discussion of what conditions need to hold to avoid collapse. The difference between the Torrens Hume position and what he thinks is the Dick Smith position is that TH thinks more efforts need to be put into creating the alternatives that lead to an optimal outcome rather than doing a Henny Penny and crying that the sky is falling. Also, TH would argue that it is possible to have economic growth and sustainable use of natural resources.

It seems self-evident and rather uninteresting to say that if society was dependent on consumption of a finite stock of a non-renewable resource, then the resource will run out and we’ll all be done for. Suppose, for example, the world’s population was dependent on just one good – bread. Bread in this world is in finite supply in the form of a huge non-renewable bread mountain that gets mined for food. In this world it is pretty obvious that one day the food will run out. It’s a matter of when, not if. (OK, agreed the population or the amount we consume could go asymptotically to zero, but it seems quite reasonable to assume that once the population goes below one then we are done for and that we also need a minimum amount of food per day per person to sustain a life, which rules out these odd asymptotic solutions).

It is also true that, if we used this resource in ever increasing amounts, it will run out at an ever increasing rate and that life will end in finite time at a date the is approaching at an ever accelerating rate. It is not hard to think why the bread mountain could suffer this fate. Suppose that the world’s population was growing and the resource was a free-for-all. For example, imagine that there is no fence around the resource to stop the ever growing population from freely mining the bread. It is also not hard to think of a solution that could extend the life of the mountain: put a fence around it and price the resource so that people would consume less of it.

There are two reasons why fencing and making a market for the bread slows the rate of consumption. The first is that if it is expensive you use less. The other is, if it is free, but finite, it won’t take long before people realise that it will run out, so they will rush to make sure they are first to consume it before someone else does. Nevertheless, regardless of whether there exist economic mechanisms to slow the rate of consumption or not, in this simple world, the Earth’s population will, one day, become extinct.

The more interesting situation is to consider a world where we also consume renewable resources and/ or those which can be expected to be available indefinitely (e.g. solar energy). In this case, we face a different problem – that is how to be to use the finite resources (which may include a not-at-all option) as well as the other resources in a manner that can best sustain life indefinitely. Once we allow for such options we are in the realm of possible perpetual growth, at least in principle, with the source of that growth being the stock of human knowledge, which doesn’t diminish or get used up with consumption, but can accumulate or spread as ideas from one great mind spill over to another. As Isaac Newton once proclaimed (while sitting under his favourite apple tree) “if I can see further, it is because I stand on the shoulders of giants.”

So what is being said here is: yes, you can squander a finite set of non-renewable resources, but that does not prohibit the human race from enjoying perpetual growth. To achieve this goal, we society must come up with mechanisms to create the incentives to use our natural resources in the most efficient way. This is extraordinarily difficult and great thinkers need every bit of encouragement they can get. Perhaps Dick Smith could help. Would it not be better for Dick Smith to provide a prize for a workable solution to the Murray Darling problem that provides a sustainable supply of water to all the states, for example, rather than offering a prize to say that our current practices are unsustainable? Or a mechanism that creates an incentive for all G20 members to cut carbon emissions that all the G20 would want to agree to. These are tough problems, but we need solutions that work.

Leave a Reply