Focusing on GDP presents an enticing distraction from the associated ecological harm. Jack Santa Barbara argues that ignoring the corresponding decline in energy is a recipe for economic and social catastrophe.
Opinion: Continuous economic growth is clearly the dominant policy priority of every government on the planet, every business and most families. Economic growth increases our capacity to do things we deem important, whether that is a winter holiday or investing in greenhouse gas mitigation. Economic growth helps secure a better future by ensuring we have the resources to meet our needs and wishes.
The notion of economic growth is so pervasive that we take it for granted. Many of our prominent institutions and businesses assume economic growth is the natural order of things and are designed accordingly. Our money system, for example, requires economic growth to repay bank loans with interest. Given current levels of credit and debt, it is clear that a lot of future economic growth is needed to repay those loans.
Continuous economic growth has also captured our psyches. We expect or wish for higher incomes every year. We expect our investments to increase and feel cheated if they don’t.
This is because the notion of economic growth is so pervasive we rarely question its desirability, or even feasibility. There are good reasons to examine both more carefully. Failure to do so could be catastrophic according to many scientists.
Economic growth is generally thought of in terms of increasing GDP, which is an index of the amount of money generated. This in itself is problematic, because it does not directly track the material and energy throughput that is essential for any economic activity to occur. GDP and throughput are highly correlated and it is reasonable to use one as a proxy for the other in many, but not all, circumstances.
GDP might look healthier than it actually is because more of it will go to producing energy rather than using any surplus energy to serve society.
When discussing purely economic issues, GDP terminology makes sense. But when we think of ecological implications, then throughput is more germane. This distinction is relevant to discussions of whether economic growth can continue for decades to come. From a purely economic perspective, growth can continue because GDP is just a number and numbers can expand to infinity. But from an ecological perspective, energy and material throughput in the economy have biophysical limits. These limits can be transgressed temporarily, but doing so risks collapse of the systems involved – both economic and ecological. This is the challenge we face with climate change, and other environmental problems.
It is helpful to recall that economic growth as a policy priority is relatively new, having emerged in the middle of the last century. This occurred along with technologies to make use of fossil energy, a magical new resource that significantly expanded the surplus energy available to society. The correlation is very high between economic growth and increased energy use.
It is no coincidence that the history of global ecological destruction, in the forms of climate change, biodiversity loss and pollution of just about everything, closely parallels this expansion of both GDP and energy use. Without the fossil energy spurt, neither GDP expansion nor global ecological degradation would have been possible.
It’s also helpful to recall that the concept of GDP growth was never intended to represent improvement in social welfare, but simply to measure economic activity to track industrial output during WWII. GDP’s wide acceptance as a mark of social welfare is an indication of how poorly we understand economic indicators. The data are very clear that various measures of social welfare are not correlated with GDP growth beyond a relative low level that covers basic needs. Focusing on GDP presents an enticing distraction from the ecological harm the associated throughput creates. It is also an excuse for not having to take gross wealth disparities too seriously; everyone can become richer is the ill-conceived assumption.
If we accept that GDP is simply a measure of economic activity, which may actually be having net negative impacts on human welfare, then we can focus more on actually improving human welfare.
Returning to the connection between energy and GDP growth, there are several observations that suggest changes in our global energy system are going to mean a decline in GDP in the years ahead. GDP growth rates have been declining over the past several years, long before Covid. And for many but the very wealthy the benefits of GDP growth have been absent. So also have productivity gains declined, and both for the same reason. The magic of fossil energy is waning, and this has nothing to do with Vladimir Putin. There has been a significant reduction in the net energy available from fossil fuels over the past 70 years, from nearly 100:1 to less than 20:1 today. Lower net or surplus energy means less work can be accomplished other than producing more energy. This trend will continue as it takes more energy to extract harder to reach fossil resources from yet more extreme and difficult environments.
And while so called ‘renewable’ energy technologies are becoming increasingly less expensive, they do not command the same net energy returns of fossil fuels today. It is net, not total, energy that fuels society. If an increasing portion of economic activity is going to be producing lower net energy technologies, then inevitably, there will be less energy and economic activity related to non-energy producing activities. In other words, GDP might look healthier than it actually is because more of it will go to producing energy rather than using any surplus energy to serve society. This is an example of why the distinction between GDP and throughput is important; the less energy throughput the less work possible.
Warnings about this reduction in surplus energy in coming decades have been issued by various research groups around the world. For example, one research group projects a 24 to 31 percent decline in energy surplus per capita by 2050. This is not projected as a temporary dip, but a trend that will continue into the indefinite future. Unfortunately, governments do not seem to be heeding these scientists’ warnings; economic growth remains the policy priority with the assumption that cheap abundant energy will be available to fuel it. But without increasing surplus energy the current growth paradigm cannot function. Ignoring this phenomenon of declining energy is a recipe for economic and social disruption on a grand scale.
Currently we are relying on non-fossil energy technologies to take up the slack from declining fossil energy use. There are a variety of reasons to indicate this reliance is ill-placed. All the alternative technologies have lower net energy returns than fossil fuels, and it is highly questionable whether these technologies could be scaled up rapidly enough. The magnitude of the new infrastructure build-up would be unprecedented and likely cause more environmental degradation and social harm.
Suggesting continued economic growth is not energetically feasible does not mean all economic activity will stop. It does mean a big rethink of just about everything we currently take for granted. Thinking in terms of how we can obtain the most welfare from energy and material throughput would become a priority. Such thinking could put us on a path to a sustainable and just society. While many scholars are struggling with these issues, they are ignored by governments and the growth paradigm remains dominant.
The feasibility of continued economic growth is something we should be seriously questioning. Can the economy keep growing with less surplus energy? How will our prosperity be affected? Has any civilization ever intentionally altered its priority aspirations? These are big questions that deserve careful thought. Fortunately there is a vast, if largely ignored, research literature to help inform those who care.
One of the reasons we seem to avoid such questions is that the very thought of no growth or decline in GDP is anxiety-provoking. Bad things happen when GDP drops. But if energy descent is genuine, as many scholars assert, then facing it will be less anxiety-provoking than the inevitable disruption if we do not accept the science and plan for it.
One of the ironies of this situation is that a bit of thought tells us that GDP growth is not only unfeasible, but also undesirable. Because we conflate GDP growth with increased welfare we fear its decline. But if we accept that GDP is simply a measure of economic activity, which may actually be having net negative impacts on human welfare, then we can focus more on actually improving human welfare.
GDP tracks growth in money and physical throughput in the economy. It is a quantitative measure. It does not indicate the quality of the economic activity or throughput. Things can improve qualitatively without growing physically. Hopefully, that happens to each of us as we mature. It can also happen to how well we socially put to use notions of justice, peace, understanding, respect, knowledge, wisdom and empathy. There are limits to the energy and materials we can or should use in our economic exchanges. But there are no limits to the qualitative improvements in these non-material exchanges (add fun to the list) that define how we relate to one another and the kind of society we wish to live in.