Is infinite economic growth possible?
Most environmentalists would probably say no. But I’m going to make the opposite case here.
The thing we need to remember about economic growth is that over long periods of time the products we consume and the processes by which we produce them change dramatically. As my old prof Dick Lipsey pointed out repeatedly, we have a higher standard of living today than in our great-grandparents time not because we have double the number of smokestack factories but because of new and different modes of production leading to new and different products. The fact that about 70% of our economy is now services, most of which are less environmentally destructive (air travel notwithstanding) reinforces this point.
Environmentalists would be correct about growth if doubling our GDP led to doubling the amount of materials, energy and pollution associated with production and consumption. But this need not be the case, at least in theory. That is, infinite economic growth is possible, as long as:
- i) the amount of raw materials extracted and energy produced is at or below some base sustainable level;
- ii) any additional negative externalities (ie. pollution) are kept below the “sink” capacity of nature; and
- iii) we have a fiat money system.
Under those conditions, there is no reason why GDP could not double, triple or increase ten-fold. Which is good news because the nature of transformation needed to address climate change is massive, and will be accomplished much more easily in a growth framework than in a zero-sum one.
The press for carbon taxes and cap-and-trade systems certainly moves us in the right direction in terms of addressing points i and ii. The vector for change here is in technology: how we retool our economy over time with technologies that are lower, eventually, zero emission and that are massively more energy efficient (this is Mark Jaccard’s key point in his climate modelling). Recycling of materials is also necessary to minimize the need for new resource extraction, given the amount of materials already circulating around. One intriguing area for future thinking is iii, if we get to a stage where the right to emit carbon dioxide is so valuable that it becomes a de facto anchor for money (the “carbon standard” instead of the gold standard), but this is all pretty speculative.
Having said all of that, the environmentalists may be right in the end because capitalism-as-we-know-it loves to gobble up more materials and energy and externalize its costs. Ecological economics is helpful in sorting out how materials, energy and externalities are associated with production. In neoclassical economics we cannot even have this discussion because labour and capital are the only inputs to production, technology is a black box, there are no externalities, and money is “neutral”. So it is important to distinguish economic actors in models of “the market” with the behaviour of actual consumers and companies in the system we call capitalism. The bigger question is whether capitalism as an economic system is ultimately compatible, at least in its current dominant form, with a carbon neutral economy.