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“The Economic Growth Trap” by (the late) David Delaney. Today (01.23.06) I read “What to do in a failing civilization” by David M. Delaney. It contained the best explanation of why American-style capitalism requires growth I have ever seen. With the kind permission of the author, it is reprinted below. The full paper and other essays by Delaney can be found at http://geocities.com/davidmdelaney/.
Economic growth requires increasing the amount of high quality energy and materials degraded by the economy each year. Economic growth on a finite planet will eventually stop. If it does not exhaust the resources needed for its continuation, it will stop earlier for some other reason. Allowing resource depletion and biosphere degradation to terminate economic growth will produce catastrophe. Unfortunately, our dependence on economic growth makes it extremely unlikely that we will give it up voluntarily before the catastrophe. Our dependence has at least four aspects: A) in the need to deal with adverse consequences of labor-reducing innovations, B) in commercial bank money, C) in the need to maintain tolerance of inequality, and D) in financial markets.
A) The first dependence on economic growth is in the need to avoid the adverse consequences of innovations that reduce the need for labor.1 By definition, each labor-reducing innovation either increases the amount of a good produced or throws some people out of work. Firms that create or exploit a labor-reducing innovation create new jobs internally by driving other firms out of business. The new jobs implementing the innovation offset the loss of jobs caused by the innovation, but the innovating firms don’t necessarily hire all of the job losers, because the innovation reduced the total amount of labor needed to produce the original amount of the good. In order to re-employ all job losers, the economy must grow to produce more of the good with all of the original workers, or produce more of some other good with the cheaper labor (the job losers) now available. In either case the economy grows. Much of what we consider progress is due to labor-reducing innovations. In order to live without economic growth, we would have to give up this kind of progress, or introduce arrangements to allow workers who become unproductive to retain their relative wealth and self-respect, or relegate most people to a repressed underclass. There is a powerful incentive to avoid these contingencies by encouraging economic growth.
B) The second dependence on economic growth is in the creation of money by the act of borrowing at interest from commercial banks. Much of the money in each loan by a commercial bank is created by the loan itself. The bank collects a fee—the interest—for providing the service of creating the money. Other ways of creating money have been explored in theory and practice. Successful local currencies have been based on some of these alternatives, (see Douthwaite, Short Circuit, page 61) but all national money is now created by interest-bearing loans from commercial banks. This way of creating money contributes instability to an economy based on it. In order to keep the money supply from contracting when a loan and its interest are paid, a larger total of new loans must be created, increasing the money supply. (This is not transparently obvious. For a more detailed explanation, see Douthwaite, The Ecology of Money, page 24.) When the economy grows to match the increasing money supply, the value of money is relatively stable, and commercial-bank-created money is benign. If the rate of economic growth does not match the rate of growth of the money supply, the money supply becomes unstable. Given the use of money created by interest-bearing loans from commercial banks, an economy can minimize the resulting instabilities of the money supply by sustaining moderate growth. Monetary instability would put significant hazards in the way of deliberate attempts to contract our economy unless the creation of money was radically reformed.
C) The third dependence on economic growth is in the political and geopolitical need for tolerance of inequality. Differences of wealth are at least as great within the developed countries as they are between developed and developing countries. Think of the ratio of the average income of American CEOs to the average salary of workers in their companies. Domestically and internationally, the tolerance of the poor and middle classes for the existence of wealthier classes and countries depends on a belief in economic growth. The poor struggle, while seeing that others are wealthy and still others are grotesquely wealthy. The poor are told a story: if they keep to their work and to their diversions, and tolerate the rich, they will be better off in the future than they are today. They believe this story, or at least don’t revolt against it, because it is supported by propaganda and shared myths, and has been true for many. When economic growth disappears forever, the poor, like everyone else, will recognize that they will be progressively worse off, with no future relief possible. The peaceful tolerance by the poor and the middles for the rich will disappear. A peaceful end of economic growth would require redistribution of wealth, with consequent political and geopolitical contention. Desire to avoid the contention makes it unlikely that deliberate elimination of economic growth will be attempted before economic growth is ended by nature. The intolerance of differences of wealth that will then appear will itself not be tolerated by the rich, causing additional domestic and international conflict just at the advent of other adverse changes. At that time, if not before, tyrannical repression of the poor will greatly tempt the rich.
D) The fourth dependence on economic growth is in the financial markets—the mechanism of capitalization of public corporations. Public corporations, the main actors in industrial economies, depend on financial markets not only for capital for innovation, but for discipline, valuation, motivation, and a major part of their rationale for existence. Owners of capital—investors—give the use of it over to public corporations by buying equity or debt in financial markets. They do so only because they expect that they will, on average, and over the long term, receive back more than they gave up. That expectation disappears when most investors understand there will be no economic growth. Most of the apparent wealth of the world consists of equity and debt bought and sold in financial markets. . Any realistic possibility of the end of growth would fill investors with something like terror. Political initiatives to bring an end to growth will be opposed by investors with every means at their command. The controversial nature of proposals that would reduce or eliminate economic growth will likely prevent the proposals from reaching even the status of political contention. When the onset of sustained economic contraction is generally perceived, investors will withdraw from financial markets. The resulting failure of the markets will make many necessary developments impossible to finance and will produce confusion and stasis in public corporations just when we need them to adapt to new circumstances.
N.B. For the last few days, I have been posting short papers and some of my current thoughts on ERoEI to a new blog at http://eroei.blogspot.com/ in an attempt to remedy the inadequacies of the received wisdom on the subject that I heard expressed at the podium at the recent Association for the Study of Peak Oil Conference in Austin, Texas. No wonder so many of the Yahoo! Peak-Oil forum members claim that “ERoEI is not what it’s cracked up to be”. ERoEI and emergy are absolutely essential concepts for understanding our contemporary world; so, we had damn well better get them right, which, by the way, I believe I have done. Therefore, please take a look at the blog and leave comments whether you like the blog or not! Click on http://eroei.blogspot.com/.
Model Railroads By now some readers of these pages know that I am spending a lot of time modeling railroads. This is a more or less harmless pursuit and it provides an outlet for such creative talents as I still possess. I have opened a sub-domain at http://modrr.net/ to provide my “brainwashed” friends access to the model railroading aspect of my life without becoming enraged at the political material I have written that is too far beyond their present political understandings. Most of my model railroading friends have fallen victim to the extreme anti-communist propaganda that permeates their lives.
Lately I have been working on the model railroad the development of which is recorded in a series of MS PowerPoints that are linked to http://modrr.net/railroad.htm, which clearly has nothing to do with dematerialism or energy except insofar as the Union Pacific coal mining operation in Southern Wyoming was one of the most egregious examples of the violation of both humanity and Nature. Also, for later pictures, see http://modrr.net/texaschildrenshospital.htm, http://modrr.net/screensaver.htm, http://modrr.net/clouds.htm, and http://modrr.net/petref.htm .
The Solutions Journal The website http://www.thesolutionsjournal.com/yoursolutions of Solutions for a Sustainable and Desirable Future has kindly posted the contents of my wiki. It is a very good fit in my opinion, as most of the contributors understand that we have reached a limit to growth that practically guarantees a die-off somewhere in the world in the wake of Peak Oil. Americans are slow to recognize Overshoot because our government has made it its business to export the die-off to foreign shores. Many of us have been forced to reduce their expenditures because of unemployment, but very few are missing meals. At least, if they are, I am not aware of it. On the other hand, starvation is all too common in states where we have used our military strength to trade ruinous loans for precious natural resources, particularly in Africa, which seems to suffer no matter what else is going on.
Facebook:I have only the usual positive results to report.
Twitter: http://twitter.com/ I have very little experience with twitter, but it seems to be useful to many people.
Houston Chronicle: http://www.chron.com/commons/persona.html?newspaperUserId=TomWayburn or http://tinyurl.com/9bkzv7 After leaving a comment on Loren Steffy’s blog, I accepted the Houston Chronicle’s generous invitation to start my own blog, albeit tucked away in a dim, dark corner. Am I being naïve to suppose that this will not be used to lure me into the clutches of my most vicious political enemies? Partly to defuse that possibility, I have labeled the blog politically moderate, which of course I am.
I found Peter Russell’s World Clock page so interesting that I decided to link to it: http://www.peterrussell.dreamhosters.com/Odds/WorldClock.php
I have added a link in About the Author to an mp3 version of the record I made with Lennie Tristano and Peter Ind when I was 22 years old. If you are interested, click on http://dematerialism.net/tristano.mp3.
As of September 8, 2008, this website is hosted by hostmonster.com. .
Beginning in August, 2007, http://www.justpassinthru.com/users/home/twayburn/ will mirror this website except that a few large files will be zipped and the DOE’s Annual Energy Outlook for 2005 will be omitted. The justpassinthru.com website is recognized by this sign: Lately, I have found it increasingly difficult to sync the justpassinthru website with this one. It’s hard enough to manage one website; therefore, http://www.justpassinthru.com/users/home/twayburn/ is bound to lag.
See the journal entry for July 30th for some preliminary calculations on carbon dioxide emissions during the solar cell production cycle.
See the extended journal entry for July 27th on “Communism and Some Idle Thoughts on the Excesses of Capitalism”. This and the entries of June 9th and June 16th have been pulled together in a discussion of the differences between War Socialism and the Natural Economy at http://dematerialism.net/hanson.htm. Thanks to James Sinnamon, this is available at http://candobetter.org/blog/18, my new blog on candobetter.org.
For readers of my Facebook comment to Andy Fite’s song, I am providing this list of my best papers and other essential papers even if they are not well-written. If I think a paper is necessary or very useful to understand what is happening in the world now, I have listed it. This is a lot to read. If anyone actually reads these papers, I will try to think of additional papers to add to the list. Please let me know if you are reading any of them. I will answer questions if I can.
[The big table of contents continues.]
Hyperlinked to this Page
(full 600-page book in one file)
(full 600-page book in a zip file)
(table of contents hyperlinked to individual chapter files)
(many important ideas from the book – 56 pages)
(no longer active)
(very short but worth a look)