I was reading this blog article on the BBC when the question of resources and perpetual growth came up. The argument is that almost all economists (and the general population) assume that it is natural and desirable that the economy grows by 2% – 3% forever, but that this assumption cannot be valid. Growth rates are compounded, which any mathematician can tell you will give you an exponential curve. And it doesn’t seem possible for resource usage to continue to grow exponentially forever.

However, I think that a lot of people don’t truly locate the source of the problem when they make this argument. Yes, there is a finite amount of many things on the earth, but most of those resources are recyclable unless they constitute a source of energy themselves. Our important limits, which are not easily raised beyond a certain point, are:

• Energy
• Human labour
• Land / Environmental Limits

Given an infinite amount of energy and labour, other finite resources such as metals or drinking water would not be a problem. Recycling is at least theoretically possible for most materials, but it is typically energy intensive and/or requires significant human labour as input.

I’m going to focus on energy, because I work in the energy industry and because I think that human labour is not likely to be a major problem for the foreseeable future. More and more work can be automated if really necessary, so if we really need real, intelligent people for a specific task I think we can probably get them. Furthermore, I don’t have much to say about land/agriculture, although I think it will almost certainly be even more of a worry in future if the human population doesn’t stabilise sooner rather than later.

But to me, energy is the major problem. The amazing growth the world experienced after the industrial revolution was all driven by the availability of cheap energy. Steam power easily beat horses or manual human labour on a £/KWh basis for many tasks, which mean that it became cheaper to produce certain goods, which raised demand, and so on. The increased use of other fossil fuels such as petroleum and natural gas took this process further, as did the growing use of electricity and the efficiencies of scale gained by centralised power generation and distribution. And as cheap energy reduced the need for manual human labour, that labour was reassigned to provide new services, or to reduce the cost of existing services.

The problem is that we may be approaching a time when the real cost of energy increases steadily, and it is hard to see how this won’t have an impact on the ability for people to be better off. The industrialisation of the rest of the world means that demand for energy will continue to increase rapidly until the prices rise enough to stabilise energy use. This isn’t so much of a problem for countries which have only developed recently, because the importing of foreign technology has improved their efficiency, but it will be a long and deep shock for economies which have fewer obvious efficiency gains to make and which have been built around lower energy prices.

This does assume that supply cannot increase quickly enough to maintain the current price in the long term. But I don’t think this is an assumption that is that controversial: even if fossil fuels never peak, it is widely acknowledge that growth in production is not likely to be as fast as in previous times. Of course, we can increase our usage of non-fossil fuels, but that is also an expensive process, with its owns problems. There doesn’t seem to be any easy escape from the need to spend more on energy.

The rise in the cost of energy will almost certainly exacerbate other problems which the world is facing. It is well known that clean drinking water is becoming a greater problem, which could be solved in many areas by purifying sea water. But that process is extremely energy intensive, which means that any rise in energy prices has a big knock-on effect. Similarly for shortages of other resources: the solution to many would seem to involve higher energy usage, but with limited supply this becomes difficult.

In short, the big problem for growth and the world economy isn’t peak oil, or limited quantities of materials, or limited water. The biggest problem we have is that, in the long term, energy in general is almost certainly going to become more expensive, and cheap energy has been one of the key drivers of the massive economic expansion that the world has seen over the past century. And if the world goes back to one where is it harder for everyone to become more prosperous at the same time, we can almost certainly expect to see more conflict both within and between countries.

Posted by chrisdb on 2011-02-13

Tags: politics

Copyright © C Bates 2011