Some Unsustainable Conventional Wisdom

The conventional view of mainstream economists is that the US and world economies will enjoy perpetual growth, per capita, of around 3 percent per annum, driven by capital accumulation and exogenous increases in something called total factor productivity (TFP). The latter is presumed to be due to increases in knowledge or 'human capital'. Perpetual economic growth is an extrapolation from history and a pious hope for the future, not a law of nature. Yet few economists question it. Governments, businesses and institutions are now, and have been for several decades, effectively addicted to the presumption of perpetual and inevitable economic growth. Any suggestion that growth might not continue indefinitely (or that it might not be a good thing) is ignored or derided. Periods of recession are invariably regarded as exceptional. Analysts and pundits of all stripes speak of 'recovery' as though the economy were merely suffering from a cold, or perhaps, a mild case of the flu. We think, on the contrary, that the emperor probably has no clothes. In short, future GDP growth is not only not guaranteed, it is more than likely to end within a few decades. Indeed, we suspect that US national wealth has already peaked, and is now declining.

One of the more interesting digressions among economic theorists, especially since the Limits to Growth controversy in the early 1970s (Meadows et al. 1972, 1974), has been the attempt to demonstrate that perpetual growth is theoretically possible, even in a world characterized by exhaustible resources. The argument is reminiscent of Aesop's race between the tortoise and the hare. Growth can continue indefinitely as human-produced capital replaces natural capital, while the exhaustible resources are consumed at an ever-slower rate. In this context, one might cite influential papers by several leading economists, in the 1970s, including Solow (1973, 1974a, 1974b), Stiglitz (1974) and others. Assessments of the long-term implications of climate change also assume perpetual growth, at least for the next century (for example, Nordhaus 1993a, 1998, 2002; International Institute for Applied Systems Analysis (IIASA) and World Energy Council (WEC) 2000; Nakicenovic and Riahi 2002).

In contrast, as explained in Chapter 8, the REXS model developed in this book does not assume, nor does it predict, perpetual growth. It has a finite horizon only a few decades ahead. Indeed, a new growth impulse after the projected medium-term slowdown is not excluded, although it would require a new and different 'growth engine' - not part of the model - and probably a new source of useful work at costs significantly lower than current resources and conversion technologies appear to allow. In fact, we take this possibility seriously. But that is a subject for another book.

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