David R. Henderson  

Limits to Progress?

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Without the progress of the 20th century, Milton Berle said, we'd all be watching television by candlelight. (Of course, postal delivery might be roughly the same.)

This is from Todd G. Buchholz's article on economic growth in last Friday's Wall Street Journal. The whole article is well worth reading.

It reminded me of when I gave a talk at a local Borders' a couple of years ago. My talk was titled, "Do We Need to Go to War for Oil?" (My answer, by the way, was no.) The talk attracted people from various parts of the political spectrum, including a friend of mine, George Riley, who's a local Green Party leader. During Q&A, George said:

I'm starting to get the impression that economists don't see any limits to how wealthy we can be. Am I right about how economists think?

Instead of answering yes, I said:

Let me answer indirectly. Imagine you're an average young adult in the United States in the year 1900. What does your life look like? Maybe you came from Europe or maybe your parents did. One thing you're pretty certain of is that you won't be going back to Europe unless it's as a soldier. So you'll probably never see your relatives from Europe. Will you be able to call them on the phone? No. Do you have a refrigerator? No. What happens if you get a bad blister that gets infected. Can you take penicillin? No. It doesn't exist yet. You might die. Someone tells you that in about 100 years, you'll be able to carry around a phone that you can afford and be able to call, for a very small fee, a relative in Europe. Moreover, you'll be able to do it while you're walking. Also, he tells you, if you hit it off with your European relative, you can go over there next week in less than a day and spend less than one month's after-tax pay to do so. And then, what about music? He tells you that you'll be able to carry around music that you can access . . .

"Ok," said George, "I get it."

It's amazing how many people don't. Here's a quote from the transcript of a Meet the Press interview that David Gregory did with Anne Mulcahy, not just a random person, but the head of one of the biggest companies in the world, Xerox:

MR. GREGORY: Meaning we talk about--is wealth going to return?
MS. MULCAHY: I think wealth does return.
MR. GREGORY: To the levels that we've experienced it?
MS. MULCAHY: Not to the levels we've experienced it.

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CATEGORIES: Growth: Consequences



COMMENTS (33 to date)
John writes:

Understanding wealth and progress is difficult for many people. For example, many environmentalists take progress for granted, and assume that the low-cost availability of resources and technology is not at all the result of things like voluntary exchange and profit-motive, but of some general constant upward movement of human excellence that will automatically benefit all people.

R. Pointer writes:

I am sure that English/Journalism degree gives her great insight into the economy.

We must suffer fools...

TH writes:

Wealth is the freedom to do what you want most to do. Unfortunately, the latter always outpaces the former, no matter progress.

Mr. Econotarian writes:

It is kind of sad, Anne Mulcahy doesn't really get to say more in this show than one-sentence answers. It is tough to know what she means about wealth "Not to the levels we've experienced it." Not really what I expect from a CEO.

Of course, Xerox mainly sells low-end printers these days with a few pro niches.

In the same show, Jim Owens from Caterpillar has a strong message:

"I'm very optimistic about the global economy, and I think the key thing for America is we've got to think about being a global leader. Back to some of Eric's points; we've got the best scientists, a lot of innovation. We need to focus on being competitive in the global market. We're 5 percent of the world's population. The key thing now is avoid protectionism, think about global competitiveness. That's going to--you know, the best American companies will invest all over the world and be leaders in the world market."

H writes:

We have to reduce our living standards. Our way of life is simply not sustainable. If everyone adopted the average American lifestyle, we would need 4 more planets.

Bob Hawkins writes:

Expanding on Mr. Econotarian's observations, you have to consider the time frames in which different people think. To a congressman and his staff, anything past the next election is the distant future. To a CEO it may be after the next quarterly report.

fundamentalistr writes:

Isn't it time that economics passed the mantel of "dismal science" to the environmentalists and socialists? Economists are the most optimistic people on the planet, especially Austrians. From the greens/socialists we get nothing but doom and gloom. The true dismal sciences are environmentalism and socialism.

H writes:

Isn't it time that economics passed the mantel of "dismal science" to the environmentalists and socialists?

No. Environmentalism and socialism (and libertarianism) are ideologies and political movements, not science. Economics is (or should be) a science and a tool for objective analysis. It is not right-wing nor left-wing. Many environmentalists use mainstream economics.

We should only care about the truth, even when the implications are inconvenient. The fact is that climate change, the unsustainability of our lifestyle and other environmental problems are real.

SydB writes:

Past results do not guarantee future performance. 10,000 years of progress do not guarantee another 10,000.

It all depends on how one defines progress.

In general, the doom and gloomers, as well as the starry eyed optimists, have little or nothing of appreciable value to say on this topic.

Conor writes:

I think it's plausible that we never return to the glory days of 2007. At the present rates of spending and inflation, the US government has a non-zero chance of defaulting on it's debts. Default -> collapse of the American empire -> a new dark age, in which many years pass before we return to our present wealth levels. Extremely unlikely, perhaps, but not impossible.

Of course, Ms. Mulcahy is probably not basing this statement on her late-night derivations of the implicit default probability of T-bills. More likely she is just being a little thick.

Either way, errors can be made at both ends of the optimist/pessimist scale.

Cheers,

Conor

David R. Henderson writes:

Conor says that default would lead to collapse of the American empire. I'm not sure this is true, but this sounds pretty optimistic to me.

SydB writes:

Note that people in this blog--and others--often refer to emergence, complexity, and the invisible hand of the market. The implication: nobody can predict what will emerge from a complex system.

If they believe that, then they must also admit that a limit to progress might emerge as a natural product of evolutionary systems.

We don't know. Those who say one way or the other don't know. They're just stating a personal preference or desire. That's all.

fundamentalist writes:

h: "Environmentalism and socialism (and libertarianism) are ideologies and political movements, not science."

Socialists follow Keynesian and Marxist economics and environmentalists claim to be following natural science. They are the dismal sciences.

Norman writes:

H, if there were no such thing as technological progress, you and Malthus would be absolutely right. As it is, no Malthusian prediction has ever come true. That doesn't mean they never will, but there hasn't been any real support so far.

More generally, the fact that reasonable, informed people disagree about how convincing they find the evidence behind "the unsustainability of our lifestyle and other environmental problems" suggests to me that a healthy degree of skepticism is called for, rather than reactionary policy prescriptions. Particularly in light of the example of David's indirect answer about progress.

lukas writes:
If everyone adopted the average American lifestyle, we would need 4 more planets.

You don't get it, do you? This is why we have progress, ferchrissakes. Everyone won't adopt the American lifestyle today, or tomorrow, but a hundred years from now, I expect the majority of the world's population will have a lifestyle vastly superior to the one today's average Americans enjoy.

SydB writes:

"Everyone won't adopt the American lifestyle today, or tomorrow, but a hundred years from now, I expect the majority of the world's population will have a lifestyle vastly superior to the one today's average Americans enjoy."

This is the type of statement I referred to above. It's extrapolation. Everyone knows from basic mathematics that extrapolation is largely useless except near the boundaries of actual data--e.g. today and tomorrow for the above discussion.

Resource constraints could become a problem and we simply don't know how the system will adapt or respond. Humans have never run into resource constraints at the global level and it's possible we'll hit some serious constraints in the next century.

TJR writes:

"This is the type of statement I referred to above. It's extrapolation. Everyone knows from basic mathematics that extrapolation is largely useless except near the boundaries of actual data--e.g. today and tomorrow for the above discussion."

Extrapolation from mere statistical correlation, yes, but once you've determined the causal factors involved, you can go far beyond the "boundaries." Once you know the causes of economic growth and technological progress, there is practically no limit to what it can be used to analyze, be it past civilizations or potential future ones, or even an alien/extra-terrestrial one.

"Resource constraints could become a problem and we simply don't know how the system will adapt or respond. Humans have never run into resource constraints at the global level and it's possible we'll hit some serious constraints in the next century."

Again, your statement that "we simply do not know how the system will respond" assumes that we do not know how the "system" works. If we knew its fundamental workings--the laws and principles that govern its behavior, we can definitely predict how it will respond. There is more to scientific knowledge than statistical correlations. There is the understanding of *causes*. There is scientific *theory*.

That is why we can apply scientific theories whose sole empirical basis is statistical experiments *NOW and HERE on EARTH* to billions of years into the past and the future, and to objects billions of light years away. That is why, if economics is a good science, we can apply our knowledge of the causes of economic growth and progress to future human societies.

kebko writes:

Maybe I'm being a jerk, but I find it humorous when people conflate quality of life improvements with resource constraints on blog discussion boards. The very medium this discussion is taking place through is the greatest invention ever for 2 things - (1) a revolution in quality of life & (2) a resource conservation tool.

lukas writes:

Of course humans have run into resource constraints before (guano is one example). Resource constraints are something humans can get around by finding alternatives, and up until now, they have never failed to do so. Usually, they even find alternatives way before the concerned resource runs out.

fundamentalist writes:

SydB: "Resource constraints could become a problem and we simply don't know how the system will adapt or respond."

Actually we know quite well how the system will respond. If the state controls the response, we're all dead. If free markets revive, the system will adapt appropriately and we will all prosper. That has been the history of economics for the past 300 years and there is every reason to think the same principles will apply in the future.

In addition to guano, there was the whale oil shortage of the mid-1800's and many food shortages.

SydB writes:

"In addition to guano, there was the whale oil shortage of the mid-1800's and many food shortages."

Those were local shortages. I said global. We don't know how the system will respond to global shortages. Local shortages were often deal with by either (a) moving and/or colonizing or (b) switching to a more energy rich resource. Good strong science tells us that neither is much of a possibility in the present (moving or finding more energy rich resources).


"Once you know the causes of economic growth and technological progress, there is practically no limit to what it can be used to analyze, be it past civilizations or potential future ones, or even an alien/extra-terrestrial one."

Social science is not much of a science (economic included). The cause of economic growth is not known in the way we know the movement of a space-craft. Therefore it is not possible to extrapolate much beyond the present in the social sciences.

In the hard sciences, extrapolation using mathematical models and physical laws allows us to predict beyond the present. In economics, mainly words are used. Economic models are, if anything, more troublesome than global warming models, which most on this board question.

Hence my assertion stands: we really don't know how the system will respond.

"Actually we know quite well how the system will respond. If the state controls the response, we're all dead. If free markets revive, the system will adapt appropriately and we will all prosper."

This also is not known. The state--DARPA--originally invented the internet, for example, which we are using right now. The state responded to previous shortages by colonizing--or providing the military resources to do as such. And the state even now provides R&D for many advanced projects.

Point is: statements about the future beyond a few decades are entirely wishful thinking and express the desires of the person making the wish. More fiction than science: science-fiction.

Buzzcut writes:

What resource constraints might there be?

Energy? Renewables are improving at a low rate. Nuclear, however, is proven, and a system of reprocessing would assure us of a "sustainable" system far beyond any of our lifetimes. France and Japan reprocess their fuel. Again, it's proven technology.

With a global population stabilizing in the near future, one that is rapidly urbanizing, what exactly are the constraints?

With a cheap source of energy (nuclear), you can do some amazing things. Like strip CO2 out of the air. Or crack hydrogen from water. We could have the "hydrogen economy" that futurists gush about. And address global warming directly, without contraining economic growth in any way.

No, the only constraints I see are political: those who are against nuclear power and reprocessing.

SydB writes:

"What resource constraints might there be?"

I don't want to hijack this thread, but take a look at the EROEI of renewables and nuclear. Breeders are not competitive--still experimental--shut down in France and Japan--and traditional reactors--when considering end to end energy requirements, e.g. digging up uranium--have much lower EROEI than oil.

Many limits. Not just political. Except in science fiction. Science is in fact about limits.

lukas writes:

Ahem. The guano shortage was global, and so was the whale oil shortage. As for reserves, we have a gigantic ball of hot gas not too far from this here earth (responsible for solar, wind, water, bio-*, you name it), and a sea of molten slug and metals under our feet (geothermal). Also, a good part of this planet is not in its least energetic state (iron) so we might get something out of that (fusion, nuclear). None of these are very competitive for now, but if the price of energy rises, they will become competitive, as long as their EROEI is positive (Yes, science can tell us about upper limits on the EROEI, but how close we get to the limit is an engineering question).

In the long run, those technologies cap the rise of energy prices, so that they will not outpace economic growth.

SydB writes:

"Ahem. The guano shortage was global, and so was the whale oil shortage. "

Not really. As I said above, humans moved to greener pastures and higher EROEI sources. We're talking about a time period pre-modern physics. We've learned much since then about EROEI--that concept wasn't even known back then. Now we know that there aren't any EROEI sources similar to oil.

All those you mention are lower. That's a fact. We don't know what it means for a global industrial civilization to move to a lower EROEI regime. We simply don't and those who say otherwise are ignoring the whole concept of emergence, complexity, networks, and unpredictable outcomes. It's easy to say that the unpredictable outcome will be good, but one must admit that it could be bad as well.

These are facts. EROEI of all of the alternatives are lower.

George writes:

The state--DARPA--originally invented the internet, for example, which we are using right now.

The state paid BBN, a private company, to develop a computer network using packet switching — a technology invented several years before by J.C.R. Licklider, who was then working at BBN (which, as I mentioned, is a private company).

Packet-switched networking might very well have caught on without government support — except the government had given a monopoly on communications to AT&T. So yes, sometimes the government can solve problems caused by the government; that is not really a virtue.

Greg writes:

I think hitting the growing wealth theme is always good. I do have to take issue with the quote, however, since I think it's taken out of context. CEO's aren't idiots, so the most probable assumption is that Mulcahy is saying that we won't return to the same levels of wealth in the short term (i.e., the first year of the recovery). To assume that she's talking about the long term is just an exercise in smug superiority.

lukas writes:

Ah, I misunderstood you there. Thought you were talking about global in a geographic sense.

What's the big deal about EROEI? I honestly don't understand. If it is small, it just means you have to feed a bigger percentage of the produced energy back into the energy producing sector. Which raises costs as the "reinvested" energy becomes unavailable for other uses, but does not otherwise have much of an impact.

Anyway, if wikipedia is to be trusted, we've been in a regime of sinking EROEIs ever since oil was first discovered and used as a major source of energy. Which makes sense, as high-EROEI reserves would be exploited (and exhausted) first.

SydB writes:

"The state paid BBN"

True, but not just BBN. UCLA was involved as well. BBN only developed some of the packet switching software for the IMPS.

All I'm saying is that the government is evil meme is a bit boring sometimes. E.g. Silicon valley is largely a product of aerospace research and development.

"What's the big deal about EROEI?"

We don't know what will happen as more and more energy is required to produce less and less energy. Thats all. You are exactly right--one expect high EROEI to be produced first, the so called low hanging fruit. Now we're expending more energy to produce what is left. There were still high EROEI sources in places like Saudi Arabia so they kept the overall EROEI low. We are in a much different regime now.

We just don't know. That's all. No predictions from me.

lukas writes:

We don't know what will happen as more and more energy is required to produce less and less energy, but given that it's essentially been this way for a century and a half, I don't see much of a reason to be very concerned about that particular fact. The Canadian tar sands' EROEI doesn't look that attractive, even compared to renewables like wind power, yet we have started exploiting them in parallel to supplement the cheap Saudi oil.

SydB writes:

"but given that it's essentially been this way for a century and a half, I don't see much of a reason to be very concerned about that particular fact."

One consideration with respect to the above view: one probably should take into account overall EROEI. The fact that marginal EROEI has been decreasing does not take into account the average EROEI for all supplies.

One problem that futurists don't consider: technological evolution is not necessarily driven only by demand. There is a supply side to it, a supply of ideas, capabilities, etc. So we don't know whether the demand--for energy--can be met by the supply of ideas to tap into alternatives--nor whether the physics will be on our side. Time will tell.

barry milliken writes:

The Universe has no “resources”. It’s all useless stuff.

The basic truth about resources is extremely counter intuitive and therefore understood by very few. It seems totally against common sense to say that resources are infinite, but for practical purposes they are.

The key insight is to realize that all "resources" are created by human invention and discovery. The cave man had close to zero "resources" because most of what we call "resources" were to him just useless stuff (iron, oil, hydro power .....).

Since the advent of free market economies, human discovery and invention has dramatically outpaced "depletion" by:
- converting an amazing array of formerly useless stuff to "resources".
- finding new and far more efficient ways of tapping such resources.
(Think of Borlaug's green revolution.)
- finding better cheaper substitutes (e.g.: Petroleum instead of whale
oil....).

Cumulatively these advances are often quantum leaps which consistently have outpaced the compounding depletion that Malthus worried
about.
The planet supports more people today and at a far
higher average standard of living than at any time in history. Completely paradoxical to the "common sense" Malthusian view. Our grandfathers would have been silly to conserve what they viewed as
scarce resources for future generations. And so are we if we think that way.

Read Julian Simon’s “Ultimate Resource II”.

lukas writes:

Marginal EROEI has been decreasing, but so has overall EROEI (or so wikipedia tells me: 100:1 for Titusville, PA but 10:1 for Saudi Arabia). There definitely is a supply side for technological evolution, but as money has been pouring into the field the supply has grown enormously. Just look at China...

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