A Strange New World

World leaders met in Glasgow last week to discuss actions to address climate change. I’d like to be optimistic, but there are economic realities to overcome!

I studied economics in college. Unfortunately, much of what I learned is dangerously outdated, beginning with the extolled supremacy of market-based economies. 

Please don’t get me wrong, I’m not a Socialist. Market-based economies have raised living standards more than any other economic system. Deng Xiaoping, the architect of modern China’s success, recognized this. 

But there’s a problem.

Two things are necessary for market-based economies to thrive. The first is growth, and the second is a disregard for things that don’t impact production, prices, and profit. 

Let’s examine these starting with growth.

When companies stop growing, they stop hiring workers, and in time, they cease to exist. Towns are no different. When they stop growing, young people move away. 

Growth is obviously important!

Here’s a picture of world economic growth over the past two millennia. (source: ourworldindata.org)

World Economic Growth

See any problems? 

Logic suggests this kind of growth can’t continue indefinitely! That should give us pause for reflection!

As a thought experiment, let’s assume annual growth flattens out to 1% for the next 1000 years. (A heroic assumption). How might future generations be impacted?

One way to evaluate this is energy consumption since energy is required for everything we do. 

The world consumes 91.5 million barrels of crude oil per day. How much crude oil would the world consume in a thousand years at 1% annual growth?

The answer is 2 Trillion barrels/day. 

That’s obviously not going to happen.  

Energy isn’t the only issue. In the context of 1000 years, even at a paltry 1% annual growth, consumption of everything increases to impossible levels. This is not a forecast. It’s simply the math of year-on-year increases. 

Will we run out of stuff?  

No, of course not! As supplies become scarce, prices increase, and alternatives (often fueled by new technologies) are found. 

Will technology advancement enable humans to support 1% growth over the next Millenium?  

Who knows? 

Some people, like Elon Musk, think we’ll need to leave earth! 

Growth-driven scarcity isn’t the only issue. Let’s switch gears and examine the other factor underpinning the success of market-based economies, namely “things we collectively ignore.” Economists call these “externalities.”

Externalities include carbon emissions, landfill tonnage, plastic that ends up in oceans, and other by-products of a system focused on production, prices, and profits. Markets ignore externalities, but If externalities grow by 1% for a long time, they become a massive problem! (As if they already aren’t!)

It’s tempting to blame “externalities” on profit-chasing corporations. But that’s naive. We don’t factor the costs of pollution in the prices we are willing to pay either!

The bottom line is that the economic model that underpins modern civilization is utterly unsustainable. This doesn’t guarantee a dystopian future, but it does point out that the future will need to be unimaginably different from the present. 

History demonstrates that grandchildren are more clever than their elders! Maybe our children’s children will invent a new, more holistic economic system to address growth, climate, and other externalities.

Pope Francis in his encyclical, Laudato Si, reminds us, “Once we start to think about the kind of world we are leaving to future generations, we look at things differently.” 

Sustainability will need to play a far more prominent role in humanity’s future. But first, I am afraid we will need to address the underlying incentives of our economic system.

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