The Magic of Economic Growth: BS

It’s disheartening to see an economics professor regurgitate the myth that economic growth can allow us to ignore inequity and poverty. But perhaps I should thank University of Georgia’s Jeffrey Dorfman for giving us this classic, textbook example of the kind of thinking that keeps our society chasing growth:

Why Growth Matters

Dorfman sums up, in a nutshell, why it’s so hard to dethrone economic growth (even though it’s unsustainable and the current level of global economic throughput is injuring our life-supporting ecosystems):

“There are two ways to help the poor and middle class economically: we can use the force of government to take from the rich and give to the poor and middle class or we can grow the economy so that people see their incomes rise from more abundant jobs and higher pay. Economic growth makes the second option possible, which means we can avoid the political fighting and class warfare of the first option. That is why raising the rate of economic growth is so important.”

Many people who have “gotten theirs” like the idea that “a rising tide lifts all boats.” The trouble is, since we’re bumping up against the limits to growth, a rising tide now only lifts all yachts. The pie isn’t getting bigger, so for the rich to keep getting bigger slices, the slices of others are going to have to be smaller. Again, Dorfman serves up a classic example:

“If there is little to no economic growth, people and politicians devolve to fighting over who gets the biggest slices of the pie. Rent-seeking and crony capitalism reigns. When economic growth is robust, the pie gets bigger, making it easier for people to be self-reliant and not depend on the ephemeral largesse of the federal government for their well-being….That is why raising the rate of economic growth is so important.”

Planet Earth is our pie, and no matter how hard Dorfman wishes it to be true, it is NOT getting bigger. In this piece he actually has the gall and cluelessness to offer the realities of exponential growth as support for his quest for faster economic growth. I couldn’t make this stuff up:

“Albert Einstein supposedly called compound interest the most powerful force in the universe. The same principal applies to economic growth. If real GDP per capita grows at 1% per year, it takes 70 years for Americans to double their per capita real income. At 1.5% per year, it only takes only 47 years; at 2%, 35 years; at 2.5%, 28 years. These growth rates are in the range of recent data, so you can see that small, plausible increases in economic growth lead to large differences in future wealth. Even tiny changes add up: the difference between 2.0% and 2.2% growth means the economy is 8% larger in 25 years. That is why raising the rate of economic growth is so important.”

Here’s the problem (it’s pretty clear Dorfman hasn’t considered this). Dorfman seems to like doubling Americans’ income every 28 years, by growing the economy 2.5% per year. It looks harmless enough, giving one American a chance to double his/her income over a 28-year period. Woo-hoo! That’s a lot of golf! Or nights on the town. Or a vacation condo in Florida. Trouble is, 2.5% annual economic growth doubles the throughput of the entire economy. It doubles the amount of oil, copper, and other resources we pull out of the ground, and doubles the amount of waste emitted into the atmosphere (including CO2) or buried in landfills.* And if it continues, then we see the REAL power of compound interest, or exponential growth. Just 200 years of this 2.5% economic growth gives us an economy over 100 times its size today. Do you think we can squeeze all that economic activity onto this one Earth without messing things up? At today’s level we’re already crushing the planet.

Meeting everyone’s needs on a full planet, getting fuller, is not a no-brainer. We’re going to have to think a lot harder about this going forward. Perpetual economic growth is not the answer.

*I’ll grant him that in reality a doubling of the economy might not quite double the resource extraction or waste emission, as long as new efficiencies are found. This “decoupling” of material flow from economic throughput has not proven to be massive, however, and appears to be subject to diminishing returns.