February 27, 2007

Economic growth cannot continue indefinetely without conservation

You may have heard people talking about economic systems. You may also have heard of the energy of systems. The laws of thermodynamics state that the amount of energy in any system is finite—additional energy must come from outside. What you probably do not hear a lot about are the grim implications the laws of thermodynamics have for our economy.

Growing an economy is like increasing the energy in the systemóit can’t just spring forth from nowhere; it has to come from something. You can do more with what you have by using it more efficiently, but this places an obvious ceiling on growth.

Traditional macroeconomics holds that the march of technological progress increases economic efficiency, thereby improving everyone’s lot. But this does not account for the magnitude of our economic growth over the last two centuries. I would contend that the astounding economic growth we have experienced since the dawn of the industrial revolution and capitalism is due more to a constantly rising energy supply than to efficiency increases.

Going further back in time for a moment, the period from approximately 13,000 B.C.E. through 1600 C.E. was dominated by agriculture. The Egyptians built their empire on agriculture every bit as much as Charlemagne or the Incas did.

Via the sun, agriculture also literally supplied the system with energy. The amount of sun energy we get is more or less constant, as is the amount of land we have; therefore, human population and economic activity had a ceiling imposed on them by these two inputs. Gains could be made in agricultural efficiency, but the total amount of energy in the system was predetermined.

And so it was that for thousands of years economic growth could be achieved in two ways: increasing agricultural production or taking things from other people. Trading gold with other people was a good way to take things from them, as was war. War could also yield more land, thereby increasing agricultural production. Increasing agricultural efficiency, by developing a better plow or a more nutritious crop, could help, too. These were the only two ways to increase your slice of the economic pie.

Then came capitalism, and it suddenly seemed that ceilings on growth disappeared. In economics classes, this development is explained with David Ricardo’s concept of comparative advantage. Ricardo realized that trade could more efficiently allocate the resources of everyone involved, thus allowing everyone to profit even without innovation. While this was admittedly a breakthrough in that Europeans hadn’t been thinking that way before, it is really an innovation on the same order as inventing a better plow. It does not account for all that we have seen.

The advent of fossil fuels is what really changed the equation. We no longer had to depend on the real-time supply of sun energy. Instead we were able to use millions of years of accumulated sun energy as fast as we could extract it from the ground.

The only three things anyone has actually been doing in our economy since then are producing food, producing energy, and figuring out how to do one of the first two things more efficiently. The rest is just noise. The economic growth of the past two centuries can’t be attributed solely to an expansion of human capacity; instead, much of it is attributable to growth in energy production.

But fossil fuels are running out, and even if they weren’t, they’re still damaging our environment far too much for us to continue using them. However, we might not even have to wait for the last drop of oil to be squeezed from the ground for economic catastrophe to hit—the catastrophe may simply take the form of a downward trend in total energy production. Economists and geologists call this possibility “peak oil.”

We now have a choice: We can take this once-in-a-planet’s-lifetime solar battery and continue blowing it on a wild energy-use bender as we have been doing, then enjoy our hangover until the end of time. Or we can use the incredible short-term advantage it gives us to fast-track alternative-energy research. We are running out of time, and this may be our only hope for maintaining a lifestyle that looks anything like our current one.