Economic Growth and Limited Resources...with a Little "Logic" from Tim Harford
A recent discussion about limited resources and economic growth and their relationship as it affects our sustainability got me thinking about a book I just finished last week: The Logic of Life by Tim Harford . A truly fascinating book that covers topics from race discrimination, crime, CEO pay and gambling to gambling and urban demographics and much more. All this is enveloped in a frame work by which seemingly irrational outcomes and occurrences are quite rational when seen through the prism of rational choice theory, game theory, tournament theory and other constructs. The book is also available on audio. The book is not in any way partisan, polemical or shrill. A great read for the curious mind. As an aside, I may discuss other chapters in the near future but hadn't really had the motivation as of yet.
But I did get to thinking about the very last chapter during this aforementioned discussion about economic growth.
In the last chapter, A Million Years of Logic, Harford departs a little from the previous eight chapters in that he takes a broader view on the world rather than zero in on my precise daily and personal issues. It is a bolder chapter.
For the matter in question, a very subtle and complex one IMO, we jump to page 209 (12:30 from end on the downloadable audiobook).
He refers to a notable 1798 work by economist Thomas Malthus called An Essay on the Principle of Population. Malthus based his point on two axioms:
1. Food is necessary for existence
2. Sex and the urge to reproduce are rather constant.
IOW, people have to eat and will always have sex and babies. Simple enough.
Next he suggests: "Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio."
He assumes population growth would always be checked our ability to produce food. Without technological progress, long run population growth would be nearly zero...like for other animals. Of course, Malthus knew technology was improving but assumed technological improvement grew arithmetically---"10, 20, 30, 40 , 50, 60, 70...etc.", while population grew geometrically--"2, 4, 8, 16, 32, 64, 128...etc." IOW, in this numeric example, people would run out of food between 64 and 128.
The implication of Mathus's analysis is not apocalypse, but the more prosaic conclusion that while potential population growth could be geometric, actual population growth will be arithmetic as human fecundity constantly bumps against the steady progress in human technology.
On this point, as Harford shows, Malthus was very, very wrong. The truth was just starting to become discernible during the time of Malthus and he was enable to see it in real time. It's not even the pill that shot down Malthus's idea but rather:
His mistake was to assume that technology progresses arithmetically.
In 1993, Michael Kremer of Harvard published an explanation of why Malthus was wrong. He boiled it down to one simple equation:
The rate of technological progress is proportional to the world's population.
Any man at any point in time is just as likely to offer a life altering idea...an axe, fire, a wheel, crop rotation, the espresso machine, video porn, Viagra, electricity, gene splicing, Flash Player, Google, cable TV, aspirin etc. Ideas are shared and spread to all. As a greater number of people share the idea, the idea spreads faster and contributes with other spreading ideas into newer ideas. Grossly simple but very true.
According to fuzzy math and some speculation, the idea is that in 300,000 bc we had one such idea every 1000 years, in 1800 once every year, in 1930 once every six months and today we get about every 2 months....spreading, compounding and making their mark on the future.
Says Harford on all this:
It's an absurd, grotesquely oversimplified model; it also fits the data perfectly.
Malthus seemed justified by one million years of history but didn't see the real rate because it was during his life that the real geometric rate began to barley show itself. From a small number, the difference between arithmetic growth and geometric growth is not always visible. But once its compounding power takes wind, the difference is staggering over the long run.
It remains to be seen whether...global warming, overfishing, soil erosion, or the end of oil will eventually outwit human technology and bring livings standards crashing down....So far, there is little sign of that. Most commodity prices fell during the 20th century, suggesting that despite ever-higher demand, better technology was winning the day.
Granted it's not with a whimsical "Oh, problem solved!" attitude that I approach this whole matter. Not at all. Do remember that my response, in that cited discussion, to the question:
Does the "economic growth is always good" equation assume unlimited resources?...
I answered "No.". But what I did try to convey is that economic growth, IMO, assumes exponential technological progress, which fuels unlimited possibilities for the resources we have and shapes limitless future possibilities and realties. Compared to man at any other time, we are far more resourceful and the relationship between resources invested to outcomes produced is the most efficient ever...and will be dwarfed further by future generations and as populations continue to rise, we should expect the churning out of ideas to speed up even faster.
Now, in some absolute sense, of course, we have less of any number finite resources at our disposal. But that, in itself, is rather meaningless to our future prospects. But when I say resources, I refer to everything we use: finite fossil fuels, renewable resources, products of human ingenuity etc....
But when I say we should never over-judge or over-assume what the future holds in store based on current knowledge, I mean just that. At any point in the past, if we assume geometrical population growth and economic growth without accounting for technological and exponential idea sharing component, we make the same error as Malthus. Could you imagine, sustaining our current world on year 1800 know-how? even 1900? Of course, not. Methods, resources, innovation and know-how and the geometric growth of life altering ideas make our current sustainability impossible with the limits of technology at those times. Cost constraints, cost effectiveness, innovation and other real-time realities play an enormous role in guiding our future growth and choices we make. A somewhat Hayekian view.