An historic economic tipping point: the growth paradigm has ended
February 11th, 2009 by Jim JustGail Tverberg at The Oil Drum has a post exploring the unthinkable: what if declining energy supplies mean that the global economy in the future will be shrinking rather than growing? This is a possibility politicians cannot even begin to voice, much less confront bravely and honestly.
The only politically palatable analysis of the current crisis assumes that we’re merely in the downward part of a cycle of economic activity that will inevitably go back up if only we can apply the right stimulus and keep global financial institutions patched together long enough to weather the storm.
But the reality we are banging into is that the earth is finite and we are starting to reach some of its limitations. We face immediate energy and climate crises of monumental proportions. As Daniel Lerch argues at Post Carbon Institute, the problems at hand require not a few trillion dollars thrown at them but fundamental changes in how the modern industrial world works.
Tverberg has this graph illustrating it’s easy to pay for “promises” is when the economy is growing.
But the reverse is true when the economy is shrinking rather than growing: the burden of “promises” – and debt, too (which is a “promise” to pay interest plus principle), – quickly becomes crushing.
In an economic contraction paradigm, it no longer makes sense to either borrow or to lend except in the rarest of circumstances.
Lerch argues we have not diagnosed the problem correctly. We have failed to recognize that we’re now in a “World Without Cheap Oil,” “Beyond the Limits to Growth.” Because we have misdiagnosed the problem, we are not pursuing the correct solutions.
We have crossed an historic turning point that has taken us outside the frame of what we thought possible. The world no longer works the way we have come to expect, and the old way of doing things no longer applies. Looking ahead a few decades, it seems likely that the world will be very much poorer (at least as traditionally measured by GDP).
We still think and act as if the world goes on as before. How much precious resources will we waste trying to sustain the unsustainable? The realities of our situation demand that our remaining capital be husbanded and directed only to investments that make sense within a no-growth or negative-growth environment.
Investments in energy conservation, non-carbon renewable energy with high EROEI, and in maintaining, improving, and equitably distributing the goods and services that result in high quality of life make sense and are crucial. There’s no reason a decline in GDP need mean a decline in quality of life, as GDP has always been a crude and poor proxy for human happiness and well-being.
Yet we seem determined to squander resources blindly and furiously in one last attempt to keep the growth bubble inflating and restore business as usual. The drama in our politics today is how long the illusion can be maintained – and what happens when falters.