Debunking 'limits to growth' inanities
- Ivo Vegter
- 03 Apr 2012 07:14 (South Africa)
When I quibbled with a quotation by Michael Phelps, the extreme swimmer and environmentalist speaker Lewis Pugh, who recently made a name for himself by railing against shale gas drilling, retorted snappily with a David Attenborough quotation.
His response demonstrated a telling fact: Lewis Pugh, like many fashionable ecomentalists, does not understand economics.
The original quotation, from the celebrated US swimmer, was this: “You can't put a limit on anything. The more you dream, the farther you get.”
Instead of deriding this aphorism as trivially false motivational shlock, my smart-aleck reply, referring to the infamous 1972 prophesy of doom by the Club of Rome, was: “What about The Limits to Growth?”
Pugh did not laugh at what was clearly just a mischievous joke. He took it very seriously. So seriously that he could only respond with another quotation: “Anyone who believes in indefinite growth on a physically finite planet is either mad or an economist.”
Never mind the trivial errors, like that he misspelt “Attenbrough”. Or that instead of attributing it to the relatively obscure Kenneth Boulding, environmental adviser to the late US president John F Kennedy, who actually said it and whom Attenborough quoted, Pugh appealed to the authority – or rather, celebrity – of Sir David Frederick Attenborough, OM, CH, CVO, CBE, FRS, FZS, FSA, himself.
I also cannot speak authoritatively about mad people, though I’ve heard tell they contradict themselves as quickly and thoughtlessly as Pugh just did.
However, I do know a little about what economists believe.
The notion that “indefinite growth” requires infinite physical resources betrays a failure to understand the price mechanism, which solves the foundational problem of economics: allocating scarce resources in the face of theoretically infinite demand.
In the speech in which Attenborough cites this observation, he relies heavily (and self-contradictorily in light of his stated disdain for economists) on the 19th century economist Thomas Malthus.
Malthus was not the first to fret about population growth in the face of limited resources. Giovanni Botero did so in the late 16th century. Had Botero lived to see his theory tested against reality, the sheer horror of the prosperity growth of the ensuing four centuries would have destroyed his poor soul. Those who did live after him saw abundant evidence that rising populations are a sign of prosperity, and wrote Botero off as a crank.
Malthus, however, was a respected economist. Even Adam Smith quoted him, though he quickly ran into contradictions similar to the ones in which Pugh and Attenborough find themselves. On one hand, Smith believed that “the most decisive mark of the prosperity of any country is the increase of the number of its inhabitants”, while on the other, he shared the popular sympathy for the Malthusian belief that populations could only grow until the limit of resources was reached, at which point a crisis of subsistence would decimate them.
Malthus’s theory was simple. In fact, “simplistic” would be a better word for it. He postulated (though did not prove) that human population increases geometrically, while resources increase arithmetically. Geometric growth (often called exponential growth) occurs by multiplying a given quantity every year. Arithmetic growth (also known as linear growth) involves merely adding a fixed quantity each year. No matter what, the former will always outpace the latter over time.
Let Malthus illustrate it himself: “Taking the population of the world at any number, a thousand millions, for instance, the human species would increase in the ratio of 1, 2, 4, 8, 16, 32, 64, 128, 256, 512, &c, and subsistence as 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, &c. In two centuries and a quarter, the population would be to the means of subsistence as 512 to 10.”
Even a non-economist can understand this trivial piece of arithmetic. The problem is that neither postulate – not geometric growth in population nor arithmetic growth in resources – was supported by empirical evidence or economic theory. In fact, since neither has anything to do with reality: asserting them probably qualifies for at least some definitions of the word “mad”.
If you do make those crazy assumptions, you must indeed conclude, as Boulding, Attenborough and Pugh apparently do, that eventually there won’t be enough resources to feed the world’s population. But you’d be wrong.
One of the more infamous modern proponents of this Malthusian theory is Paul Ehrlich. He once studied butterflies, and attributed to humans the same unthinking urge to procreate at all costs. As a consequence, his 1968 book The Population Bomb declared the battle to feed mankind to be over, and predicted mass starvation in the 1970s and 1980s. He was wrong.
When the economist Julian Simon challenged him in 1980 to name any five physically finite mineral resources that would be more expensive due to their scarcity by 1990, Ehrlich accepted the bet and named tin, copper, nickel, chromium and tungsten. On all five counts, he was wrong.
That all Malthusians ever have been proven wrong by reality hasn’t stopped people who don’t understand economics from repeating the simplistic nonsense that there are “limits to growth”.
Let’s see why economists – such a curious species in the eyes of Boulding, Attenborough and Pugh – deny this.
The misunderstanding goes right to the core of what economics is. According to the InvestorWords glossary, economics is “the study of how the forces of supply and demand allocate scarce resources.”
The Austrian School economist Ludwig von Mises observed that this principle applies broadly to all human action. Our every action is a choice between competing demands on our limited resources – including time, ability, capital and natural resources. Given constrained resources, we choose that action that, in our own subjective judgment, provides us, now or in the future, with the greatest material, emotional or spiritual benefit. Conversely, if we do not believe an action or transaction will leave us better off than before, we will likely choose to forgo it.
Note that Mises does not imply one has to measure everything in terms of money, nor that benefits are limited to material welfare, nor that future benefit is always sacrificed for short-term gain. Economics, to Mises and those of us who read him, is the theory of how humans are inclined to act, and what motivates them in pursuit of the production necessary to supply the necessities and pleasures of their lives.
It would seem, then, that a grasp of elementary economics might be useful in deciding how we order our behaviour and society to maximise our wellbeing in the face of limited resources. But no, Pugh’s quotable muses class economists with mad people who stupidly deny the finite nature of physical resources.
The American Heritage New Dictionary of Cultural Literacy observes: “Economics is generally understood to concern behaviour that, given the scarcity of means, arises to achieve certain ends. When scarcity ceases, conventional economic theory may no longer be applicable.”
So, contrary to Pugh and his ilk who sneer at what they don’t understand, economists do not assume infinite resources. That is a straw man. Economists are expressly concerned with scarcity.
When economists refer to “growth”, they do not refer to the total physical extent of potentially available resources. Even though this limit is extremely high, it is indeed trivially limited by the total matter content of planet Earth. It is also more practically limited, and economists are much more likely to work with quantities such as the more limited “technically recoverable” resources, or the even more severely limited “economically recoverable” resources.
When economists speak of “growth”, they mean to refer to “economic growth”, or the potential for growing prosperity by improving these limited resources and matching them to the theoretically infinite demand for better living standards.
The primary means of limiting demand for scarce resources is the price mechanism. If a resource is abundant, its price will be low or zero. A rare stone may fetch a good price, but a piece of gravel from my garden won’t sell for very much. A lawyer may charge a lot for her time, but a cleaner not very much. A good beef steak may be expensive, but rice is cheap.
The restraining effect of price on demand is multi-faceted. It operates directly, in that it sets a “market-clearing” price at which available supply is optimally distributed among competing demands. It also operates indirectly. It gives producers a signal about whether supply needs to grow or shrink, and gives them an incentive to invest accordingly. And it gives consumers an economic motive to reduce their consumption if necessary, or to seek to substitute scarce resources for less scarce alternatives.
A classic example of this phenomenon is the substitution of modern materials for wood. Once it was the best and only material used for a wide range of manufactures. By the time its physically limited natural supply had been reduced to economically unviable levels, however, the price mechanism raised the price of rare woods, and signalled that it would profit us to either establish renewable supplies of fast-growing wood, or to divert demand from wood towards more abundant materials, like plastics and concrete. This is exactly what happened, and today we build much of our furniture, boats, cars and houses out of materials other than the limited resource of natural wood.
In addition to the restraining and diverting effect the price mechanism has on demand, it is worth noting a few other features of human behaviour that alarmists like Malthus, Ehrlich, Attenborough and Pugh simply ignore.
One is that human populations do not grow without restraint. Unlike insects, people are intelligent beings, capable of rationally planning their reproduction. In times of peace and abundance, populations grow. But in times of economic hardship, or when people prefer to maintain higher standards of living, or when growing prosperity translates into a lower risk of children dying before they reach adulthood, many families choose to avoid having extra mouths to feed. It may have escaped the notice of Malthusians, but much modern science has been applied to the field of human fertility planning.
So much so that detailed projections out to the year 2300 by the UN’s Department of Economic and Social Affairs find, contrary to Malthusian assumptions, that population growth rates are in fact declining in all areas of the world. It predicts that the global population will peak at 9-billion in 2075, after which a relatively stable plateau will be maintained for over 200 years. And this will not be because we’re all starving. Global life expectancy is expected to continue its steady and relentless rise, reaching 75 by 2050, from 65 in 1995.
Therefore, assuming geometric growth in human populations is a simplistic fallacy.
Another feature of population growth that Malthusians ignore is that every new person added to the population adds zero or more new units of labour to the resource pool. In addition, the inexorable growth of knowledge – the irreversible progress of science – means that each new unit of labour, and indeed each new unit of any other resource, is more valuable than those that came before. The ever-deepening division of labour, and ever-growing use of technology means that our resources are ever-more efficiently used.
Therefore, assuming arithmetic growth in the value of available resources is a simplistic fallacy too.
Add the balancing effect of the most basic principle of economics, the price mechanism, and it becomes impossible to argue that growth in living standards is limited or unsustainable in any trivial way.
That is not to say, of course, that growth is trivially guaranteed. It can be, and often is, limited by war, corruption, socialism, interventionism, or any number of factors that impact on our ability to produce the means to prosper. Even the limits of a particular resource can in principle hobble economic growth for a time, while scientists and enterprising businessmen cast about for solutions to the supply crisis, or find better demand alternatives.
It is also worth emphasising that the most recent economic downturn is in no way related to limited resources or the unsustainability of economic growth. It derives entirely from government policies and interventions, such as inflationary monetary policy (fiat money, deficit spending and, most recently, quantitative easing), artificially low interest rates, implicit debt guarantees and fiscal stimulus. These non-market actions caused widespread misallocation of capital and mispricing of risk.
The point is to note that limited resources – the finite physical planet – are not a general constraint on economic growth, because the relationship between prosperity and resources is not a simplistic Malthusian function of exponential growth over linear growth.
Giovanni Botero got blindsided by the entirety of the Enlightenment and the Industrial Revolution. Thomas Malthus was discredited by the Green Revolution in agriculture. Paul Ehrlich was wrong about mass starvation in the 1970s, and lost a bet with an economist who asked him to put his money where his mouth was. The Club of Rome followed up their dystopian prophesy of doom 20 years later with a book hilariously entitled Beyond the Limits.
Botero, Malthus, Boulding, Ehrlich, the Club of Rome, and Attenborough all ignore empirical reality, stooping instead to thoughtless self-contradiction and glib ad hominem sneers at economists.
A celebrity environmentalist like Pugh is transparently unoriginal in doing so, merely appealing to the authority of his more illustrious predecessors, without any attempt to critically analyse the substance of his favourite quotations in the harsh light of reason and empirical reality.
One can only suspect that he doesn’t really have much of a point. DM