16 November 2012

The End of Economic Growth?


Listen above to a debate I participated in airing on the CBC tomorrow. Comments welcomed. Here is how the Brent Bambury introduces the program:
In the Deep Sixed series, we examine aspects of life we take for granted today that might not survive tomorrow. This week: economic growth. We consider the future of growth with help from Matthew Lazin-Ryder, host of CBC radio's The Invisible Hand, Jeff Rubin, former chief economist for CIBC World Markets and author of The End of Growth, and Roger Pielke Jr, Professor of Environmental Studies at the University of Colorado at Boulder, and author of The Climate Fix. To vote on the future of growth, visit the Deep Sixed page

10 comments:

  1. Observations:

    (1) what economic axiom is in play regarding politicos through the mechanism of government mandating 54 mpg vehicles which then is depicted as a growth engine? How does the dreams of the central planner mandating the direction of resources to produce a mandate free up resources?


    (2) Rubin states the cost of energy is holding back growth. What if the lack of growth is more related to politicos creating an economy based on government privilege than an economy based on economics? Are government privilege economies growth engines? Nay, nay.


    (3) Rubin’s discussion of population and the inability of exponential population growth is no more than a dusted off version of The Malthusian Population Trap. As Thomas Sowell has stated on many occasions [paraphrasing]: economic fallacies never die, they are merely recycled. If one would like to know exactly how off-base Rubin is regarding his notional concept try chapter four of Harold Demsetz’s book From Economic Man to Economic System.


    (4) Rubin makes a grand error regarding manufacturing coming back to home economies and that the conjectured-up supposed future phenomena is implicitly positive for the home economy. Problem is, Rubin doesn’t recognize that global [yes global] manufacturing and its employment of human capital peaked years ago. Hence he is stating that the home economy attracts back a sector that employs human capital at a decreasing rate. More succinctly, he is suggesting that attracting a sector that is decreasing the use of human capital at an increasing rate [decreasing at an increasing rate] is a growth phenomena. It's akin a home economy, in say 1921, attracting agriculture of the 1920’s with 40% of the population engaged in agriculture and finding in 2012 only 3% engaged. One is then stating that by attracting a sector with declining human capital employment one is creating growth. Not likely.

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  2. A few typos you might want to correct:

    "airing on the CDC tomorrow" should be "CBC" as in Canadian Broadcasting Corporation.

    "Here is how the program introduces the program"

    Maybe consider "Here's how the host, Brent Bambury introduced ..."

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  3. Sorry, but I was frustrated from the initial discussion of economic growth, which came off as sophomoric. The claim is that a pastoral village enjoys “growth” due to technical change or better labor or more resources – new technology and machines (magic), new skills (magic) and more resources (magic). Is not this the type of magical thinking that economics has been exposing since even before Adam Smith? The very first lesson in the Wealth of Nation is about the division of labor – specialization, learning by doing, scale economies that come from specialization, etc. Sure, our tribal habits of thinking make it difficult to engage rigorously with the idea and implications of emergent social order, but the magical alternative of a belief that growth is a happy series of felicitous genius and serendipity is for children and power worshipers. Social wealth (in contrast to the power class’s comfort and treasure) derives from specialization and voluntary exchange, and growth derives from the ever-increasing division of labor and ever-more exchange. Resources are the base at any one moment, but exactly what are resources is being defined as we go along. And if there is a limit to growth, it is to be found in an important insight of more than two hundred years ago: The division of labor is limited by the extent of the market.

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  4. Sounds like the end of economic growth is due to some bad luck.

    " Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

    This is known as “bad luck.” -- Robert Heinlein

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  5. "what economic axiom is in play regarding politicos through the mechanism of government mandating 54 mpg vehicles which then is depicted as a growth engine? How does the dreams of the central planner mandating the direction of resources to produce a mandate free up resources?"

    Yes, think how much growth would have occurred if only they'd mandated 540 mpg, instead of 54 mpg. ;-)

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  6. What was the growth engine that started in Europe in the 18th century and made out of Europe the richest and most powerful part of the world for almost 3 centuries?
    Was it coal (energy)? Was it cheap and available labour? Was it some material ressource, agriculture or some ore?

    None of this. These elements have been present for thousands of years but produced neither growth nor wealth.

    What caused this unprecedented growth period was, like the quote above demonstrates, an infinitisimally small minority in Germany, England, France, Austria etc. Their names were Jacquard, Volta, Watt, Lesage, Ohm, Fahrenheit and a few more.
    Fortunately the conditions for this small minority to deploy its creativity were given in most of Europe.
    Also most of Europe created and developped tools to detect, train and use the best brains in the general population.
    It suffices just to remind the creation of Ecole Polytechnique by Napoleon or the Prussian Academy of Science by Frederick 1 and Leibniz.

    I think that all those who look for growth and wealth creation in material ressources completely missed the lesson given by Europe in the 18th and 19th century.
    What should be studied is what are the changes in the conditions that happened in Europe (and later in USA) which made the emergence and developpement of this small wealth and growth creating minority more difficult.

    I believe that there is only 1 country in the world which is approximately reproducing the 17-18th century conditions in Europe - it is China.

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  7. In the great book "the Birth of Plenty", William Bernstein makes a persuasive case for there being four requisites to the growth of modern economies(as described by the back of the book):

    1.)Property rights, which drive creativity

    2.)Scientific rationalism, which permits the freedom to innovate without fear of retribution;

    3.)Capital markets, which provide funding for people to pursue their visions;

    4.)Transportation/communication, which allows for the effective transfer of ideas and products.

    Those less knowledgeable about economics/economic history (such as myself) would find it a very a interesting and entertaining read.

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  8. Jeff Rubin would have quite a conniption were he to read even the first paragraph of David Deutsch's book The Beginning of Infinity. Deutsch argues that growth is headed the other way (up, way up) for a long time to come. Deutsch: "The book discusses the rapid progress we've seen since the Enlightenment, and its cause: the rational quest for good explanations. It unifies many themes of reason and unbounded progress."

    Rubin's pessimism is nothing new. Here's Thomas Babington Macaulay, from ~200 years ago: "On what principle is it, that when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?”



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  9. I recently had an opportunity to read Niall Ferguson's "Civilization-The West and the Rest" on a few cross country flights. His 6 "killer" apps provide a framework to look at the determinants of development (i.e. growth) over time.

    1) Competition
    2) Science
    3) Property rights
    4) Medicine
    5) The consumer society
    6) The work ethic

    As I had just finished "Civilization..." it is not surprising that I concur with some of what both presenters had to say about the prospects for growth. A couple of days ago my Health Insurance provider let me know that my premium will be going up 18.6% next year (on top of the 58% increase over the last three years) to cover their increased costs of providing health care coverage. I am not sure when the "affordable" part of the Affordable Health Care Act will start showing up, but I hope its soon as my disposable income has taken a hit over the last few years. Luckily for me my costs for energy, be it green or otherwise, aren't expected to increase percentage wise anything like my health care costs. Having already invested in PV my electrical energy bill will only be going up in 3 to 15% per year, with the costs of my provider (PG&E) to provide me service not having much to do with the price they charge me as denoted in their 2012, PG&E, Rate Design Case.

    Roger's focus on innovation (essentially item 2 from Ferguson killer apps- which translates into the application of the scientific method to make the stuff we use in life better, faster and cheaper) as being the way we have a chance of continuing economic growth hits home with me as the primary determinant that we need to focus on from a policy perspective.

    Cap and Trade just kicked off in CA. I wonder what the dollar and increased CO2 levels are to implement the program. There is no question that the amount of revenue generated from the first auction didn't meet expectations- http://www.sacbee.com/2012/11/22/5003856/first-cap-and-trade-auction-a.html I leave it to Roger to determine how well the program will improve innovation. The electrical energy service providers in CA have already been paying in the neighborhood of $200.00 a Ton for CO2 removal via our RES which is why our AVG costs for obtaining a kwh of electrical energy is nearing $.20 kwh. The SD around that average value is rather large by the way. The range in price to purchase a kwh from the big 3 private ISO's is between $.06 to $.34 kwh; the upper end used to be closer to $.50 kwh before a rate revolt occurred in 2009. The upper price level is projected to be that high in 2020 in order to cover the costs of our RE projects without a change in how the rates are designed.

    One wonders why GM and Toyota decided to close the NUMI plant in Freemont, CA (ie see killer App #1) and move the operations to another state. As the residents of my state still purchase the vehicles that were formerly made in CA (with electrical energy that was generated from about 50% carbon neutral sources) at the NUMI plant one wonders how much leakage occurred of our tracked emissions.........

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  10. Never buy into a guy who says, on the air, "Yuh know", some part of the brain is not working at full speed [that is by the way a compliment to you Roger]. That said, the Mr. Rubin was correct when he said, "it's not the cost of credit, it's the cost of energy," very true.

    All biological activity, and economic activity is not excepted, is bounded by the availability of energy. When the availability of energy is limited, due to price or any other factor, growth is limited, stagnates or degenerates. When energy is readily available growth is possible. All of the iron ore in the world won't do your hypothetical little village any good if they don't have enough coke to melt it - or cannot afford it.

    My question for Roger is what level of economic growth is required merely to MAINTAIN an advanced economy's current infrastructure and standard of living? It seems to me, and it may just by my seeming, that something like an Economic 2nd law of Thermodynamics exists which is that you can't even maintain what you have with out some growth - except at some very low level maybe. At the low levels of 'growth' that we see currently, what we seem to actually experience, as an aggregate, is crumbling infrastructure and declining standards of living - some are doing well personally, but the society is crumbling all around at more than the usual rate.

    It seems to me that the complete challenge of the world's economic and political leaders to reduce the cost of energy for EVERYONE - first. Reduce the costs of energy, and keep them reasonably predictable and all other problems become solvable. So long as the price of energy is somewhere in EXTREMISTAN, where no one can predict where they will go when even ordinary living becomes arduous.

    Any political leader who says, 'Under my plan energy rates would necessarily skyrocket' should be: stripped, tarred and feathered, thrust through the city gates and exposed to the wilderness, because the direct translation of that statement, "under my plan, somebody, somewhere will starve," is unconscionable. Using the cost of energy as the solution for some political or social ill is EVIL - because - it means that someone, somewhere, undoubtedly poor, is going to starve as part of the plan.

    There are not enough BTU's to be taken away from the rich to keep all of the world's poor warm - and fed. Somehow we MUST reduce the cost of energy, especially for the poor, nothing else will [can possibly] work.

    The cost of energy is the cost of living.

    W^3

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