Economic Growth: The Good, the Bad, and the Ugly

In this current day when congressional Republicans and Democrats don’t agree on much of anything, there is one thing that creates a rare kum bay ya moment of unity for the two groups: economic growth. Don’t get me wrong – healthy economic growth provides jobs, creates necessary goods, and keeps the majority of us fed, clothed, and sheltered. Healthy economic growth is a many-splendored thing! However, for reasons I will explain below, we tend to become fixated with economic growth to the point where we proclaim it our societal salvation: the elixir to ameliorate all social problems from unemployment to social program funding deficits. To the contrary, I propose that the unexamined pursuit of economic growth in a finite world only makes our problems worse and hinders us from seeking and implementing actual solutions.

Let’s cut to the chase. As the Depression eventually gave way to post-World War II, vibrant economic growth in America lifted many out of poverty and pretax incomes between the richest and poorest Americans narrowed. Economic growth (annual GDP) hummed along at 4% and 5% yearly rates.  The US government published the first national poverty rate – 22.4% – in 1959, a significant improvement over the poverty rate estimates of 40-60% during the Depression. One of the main factors contributing to this strong growth was cheap and plentiful oil. As US production of oil was not able to keep up with demand, reliance upon cheap and plentiful foreign oil increased in the 1960s. The OPEC oil embargo of 1973 changed all that. Economic growth decreased to 3% during the 1970s and ’80s, and for the fifteen years of the new century it has hovered around 2%. One of the main factors for the decrease of the growth rate is the increasing price of energy due to the difficult and costly process of extracting energy sources.

Have you ever heard of the term EROEI? It’s an acronym for energy returns on energy invested. Back in the days of Rockefeller and the early American oil boom, EROEI was 100:1, meaning the energy equivalent of one barrel of oil input produced one-hundred barrels output. The area surrounding Titusville, Pennsylvania attracted oil drillers in the 1860s because of the ubiquity of oil springs – little creeks of oil! Those were, as they say, the good old days. Today EROEI for oil is about 15:1. Extracting petroleum from the bottom of the North Atlantic, for example, can be classified as an engineering miracle – albeit an expensive and extremely complex one. As the Keystone XL pipeline continues to be a point of contention in US Congress and American society, check if the sites from which you source information actually report on the EROEI of the Canadian tar sands. I’ve yet to hear a mainstream news organization mention EROEI. Some of the tar sands have a ratio as low as 3:2. Joseph Tainter and Tad Patzek, in their excellent treatise on our current energy dilemma, Drilling Down (Springer, 2012), tell us that to power a complex modern society a net energy ratio of at least 5:1 is required. Yes, the completion and implementation of the pipeline will create jobs – but at what cost? I’ve not even mentioned the accompanying pollution and strains on water supplies that the production of these energy sources entails, and the additional release of carbon into the atmosphere upon their eventual consumption and use . . .

To complicate matters, the Saudis are flooding the market with – just like the good old days – cheap oil. As I write this post in January 2015, gasoline prices in America are hitting long-time lows as the price of oil crashes the $50/barrel barrier for the first time since 2005. And, on cue, economic growth is up. Some are hoping (reports come out at the end of January) for a 5% growth rate – just like the good old days – for the fourth quarter of 2014. Will it last? Has the American economy made its long-awaited comeback to 1950s’ era growth? We’d be foolish to expect a return to what used to be. Cheap, high quality energy – coal powering the industrial era before oil became dominant at the turn of the 20th century – provides strong economic growth and is the essential foundation of the highly advanced society of which we are accustomed. A gallon of gasoline has the energy equivalent of four hundred person hours of work. Giddy up and then some!

So, YES, economic growth is a good thing. BUT, the good and strong growth we’ve experienced has been based principally on a cheap energy source. The fossil fuels coal and petroleum, essentially millions of years of chemically stored sunlight, have made possible a 200-year run of high-phase energy gain. Social commentator Richard Hienberg says we’ve gotten accustomed to a “perpetual growth machine.” For those who think the next high-yield energy source – methane hydrate is currently being touted – will pick up the slack when fossil fuels run their inevitable course of completion, I ask: Is it not narcissistic and irresponsible to think we have to continue on the same trajectory of consumption we’ve been on for the past 200 years? Financial advisor and writer Paul Kedrosky wisely opines: “I want to believe in innovation and its possibilities, but I am more thoroughly convinced of entropy.” In other words, the unlimited growth machine can’t and won’t last forever.

Australian economist Clive Hamilton calls our commitment to unlimited growth above all other things a fetish, “an object worshipped for its magical powers.” Unlimited growth is known by another name: cancer. The defining characteristic of a cancer cell is its inability to self-regulate. Healthy cells follow an established cycle of division, multiplication, and then, inevitably, death. Cancer cells are interested in only one thing: unlimited growth. Similarly, over-commitment to economic growth makes us susceptible to bubbles – the 1990s’ dot.com and the 2000s’ housing bubbles being the most recent examples. Economic bubbles are like cancer cells – they don’t know when to stop and they damage the common good.

What I’d really like to hear from a politician – a president, no less – is talk about a steady state economy. In this day and age, an elected leader – Republican, Democrat, or independent – tempts political death if he or she were to speak common sense and encourage steady state economics. That’s why it’s left up to authors and bloggers like me to do it.

My next blog post will cover steady state economy. Until then –

T. Carlos Anderson

And, in case you’re wondering, the EROEI of wind and solar energies are 20:1 and 13:2, respectively.

 

My book, Just a Little Bit More: The Culture of Excess and the Fate of the Common Good, is available at http://www.blueocotillo.com and wherever books and ebooks are sold, including Amazon.

 

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11 Comments

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11 responses to “Economic Growth: The Good, the Bad, and the Ugly

  1. Johnleavesnoemailalas@yahoo.com

    “Paul Kedrosky wisely opines: “I want to believe in innovation and its possibilities, but I am more thoroughly convinced of entropy.” In other words, the unlimited growth machine can’t and won’t last forever.”

    I disagree and think it will continue as it is in man’s nature to spend money as social stature, to be important and to show others he is able. There’s no way this will change for most of humanity, it can be controlled by rationality but we are not rational, we are reasonable at times, at most.

    I’ve read a few days ago how Denmark is producing 40% of its power from wind, how beautiful is that?

    Does the bible have anything on why people make the decisions they do? Anything about incentives?

    Thanks.

    • John – that really is impressive what Denmark is doing. They’ve been at it for a couple of generations and it shows quite well.
      Of course, we (humanity) will continue with our desire to consume and acquire. The Bible doesn’t deny it. It does, however, with its injunctions against greed, aim to keep it in check – I like to call it “greed management.” Consumption is undeniably part of our nature, but keeping it under relative control is good for me and my neighbor.

      My concern is that it’s not really been kept in check these last number of decades . . . and the energy to keep consumption powered up and churning is not guaranteed to last forever and ever, amen. How much is enough?

  2. Johnleavesnoemailalas@yahoo.com

    Tim, Sir, (not sure how to address you),

    A lot of the consumption in the US in the past decades and especially in the last one was FORCED on the US by surplus countries such as China and Germany.

    Local policies in these countries, which increased household saving/decreased consumption as local GDP has forced the higher consumption of households as percentage of GDP in the US. It’s basic arithmetic really.

    So, if we to be somewhat optimistic, the current re-balancing that China is starting to go through would improve things in the US, allow better growth (not all growth being equal) and improve the employment situation. Either way they would have to re-balance. Germany obviously has been resisting adjustment and forcing the same on Italy and Spain but this will eventually stop, one way or another. Hopefully in a good way so we don’t have to go through the 30s and 40s again…

    I’m also very optimistic about energy and energy storage, it’s really going in the right direction. Lower energy costs means cheaper food for the poor, it means they’ll have more available income to spend to improve their quality of life etc. We should be happy…

    • John – yes, please call me Tim . . . going to have to disagree with you on the US being “forced” to consume by China. I’ll invite you to read my book where I go into detail about our consumption fetish. China has been the main supplier, true; similar to Mexico supplying drugs and narcotics because they see a big ol’ market to the north. We’re just as much culpable as either of these “supplier” countries.

  3. Johnleavesnoemailalas@yahoo.com

    I’m not disagreeing with you about the consumption culture at all, I agree completely. However, a big part of what was going on was due to the USA as a large deficit country being forced to over consume as part of its GDP due to local policies in China, Germany, Japan etc. Same relationship in Europe between Germany and Spain. Like I said, it’s basic arithmetic and I’ll look it up and post again.

  4. Johnleavesnoemailalas@yahoo.com

    P.S. this is why austerity fails in Spain, Italy because the situation there is forced by Germany. The only way it can be resolved is by Germany readjusting itself and taking upon itself higher unemployment and higher consumption as percentage of its GDP. So when people think about Spain they think it’s because the Spanish are lazy or whatever, same about the Italian but when you look at their productivity it’s just not true.

    We look at countries and attach to them certain behaviors but almost always it’s due to policies either local or external. Same for the USA.

    Again, I completely agree that people consume more than they should.

  5. Jud Smith

    OK, , got to weigh in at this point. Tim, you have convinced me of the problems with continued and on-going consumption being a problem. You have convinced me that greed needs to be controlled, although we might still disagree on how that can be accomplished. But your acceptance of the EROEI numbers, published by some think tanks, is a bit troubling. Those numbers are not universally accepted. In fact, the numbers you quote for wind and solar are much debated. With oil under $50 per barrel the chance of wind and solar being promoted as a replacement for oil and gas are becoming more problematic by the day. What about nitrogen for cars? Why aren’t we pursuing that with vigor. Solar powered nitrogen generation stations, coexisting with gasoline the way diesel does now, and nitrogen powered cars with the only off-fall being water. The technology exists. Isn’t that a more direct conversion (EROEI) than straight electric cars?

    Sorry, got off the track. Let’s go back to the growth excess in our country. The ZPG (zero population growth) generation will be dead when i die, but only because of immigration reform. The replacement rates of birth in the US is 1.87, below the necessary 2.1. However, because of immigration, we are above the replacement rate, meaning that growth in the US will continue and the needs of the population must be met. So does it not seem logical that manufacturing and market growth and continued consumption will continue, to a certain degree, for some unpredictable time to come? Perhaps the “unlimited growth machine” will not continue forever, but explain to me again why it is “narcissistic and irresponsible” to believe it will….or at least might? Jud

    • Jud – As much as I dislike crossing swords with you, I got to stand firm on those ERORIs, whether wind, solar, or tar sands. I first came across those EROEIs in Tainter and Patzek’s book, Drilling Down, which I highly recommended – and Dr. Patzek teaches at good ol’ UT (!). I can be more specific to say that tar sands’ EROEI can be as high as 5:1 to bracket out the other side of the continuum from the low of 3:2. All said, the tar sands’ EROEI is still quite low – my point – I don’t hear anyone talking about it!
      And that’s my fear . . . now that we have cheap oil again, there’s less incentive to consider the social and environmental hazards of economic growth at all costs.
      The other day in the YMCA locker room a conversation overheard (small locker room) called forth for larger and more powerful engines from Detroit now that gasoline is less than $2/gallon. That, to me, spells out “irresponsible and narcissistic” to the letter. It’s also short-sighted. I should have said something to counter the guy’s comments (he wasn’t kidding), and hopefully next time I will.
      Nitrogen? I know you are a “car guy,” and nothing wrong with a big engine powered clean with water coming out of the exhaust pipe! But we both know that nitromobiles are quite a bit down the road (pun intended) as nitrogen is a low density energy source . . . for the moment!

  6. Additionally, Jud, you are right about economic growth in the US needing to increase for the foreseeable future. Yes, immigration along with our 1.87 replacement rate will dictate growth . . . my next post will take on some of what I hope will be termed smart growth – and development.

  7. Pingback: Bursting the Bubble of Excessive Economic Growth | Just a Little Bit More - Book Blog

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