Saturday, July 2, 2011

On environment, finite resources, and the inevitable cessation of economic growth

The following is an updated re-post of a 'blog' entry I first created in the mid 1990's before blogging became really popular. At that time I posted my entries to my university website. Rather than continue to update those posts, I thought it best to transfer them here. I am doing same for several other posts at the beginning of July 2011. The original post is here.

We have our heads in the sand regarding the environment. Whenever people point out problems such as pollution, destruction of forests etc., the response from many people is: We have muddled by so far, and we have to make sure that the economy keeps growing, so the environment should not be a big concern. The response from typical politicians is much the same. However, they might add: "we will study the problem -- we will do something when we have proof that damage has occurred".

But do we want to wait for irreparable damage to occur before doing something? This is like the proverbial ostrich with its head in the sand, waiting until the predator starts eating it before it admits there is a problem.

On economic growth and globalization: I am in favour of these! If economic growth comes because we are becoming more productive, and if globalization means that freer trade redistributes wealth better and reduces regional disparaties, then these are good things. What irks me is that the perpetual political debate is between those who care about the environment and hate globalization, and those who care about economic growth and think there is no environmental problem. Unfortunately, there is little place in the middle for people like myself. Business leaders have a responsibility to increase shareholder value, so they will naturally be drawn to the second camp, even if they do feel a sense of environmental responsibility. On the other hand, an environmentalist who claims to favour globalization may be ostracized by his peers! The only solution is strong political leaders who can promote globalization, with tough rules attached to it for the protection of the environment (and to prevent exploitation of people too).

Economic growth cannot continue forever at the rates we have grown accustomed to. It can only continue if productivity increases or the population increases. The population cannot grow beyond a certain level, and productivity increases are likely to get smaller and smaller. Unfortunately, we measure economic growth as a percent of increase, which implies exponential growth (with a small exponent). It would make more sense for us to strive for a stable, steady-state and sustainable economy. We should define recession as a significant drop in output, not any drop.

A few final words about this: It should be obvious to people that resources are finite. We will run out of oil and other fossil fuels. We will run out of cheap oil relatively soon. We will also run out of all other non-renewable resources. And we will run into increasing environmental problems through short-term thinking. Although business leaders are forced by economics to think only about the short-term effects of what they do, politicians must take a longer term view. Unfortunately, most politicians seem utterly unaware that a bad environment will affect every aspect of our lives (including business), and that the environment will only get worse unless they educate themselves about the science and economic issues, and then take bold action.

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