What if we’re reaching limits to growth and just haven’t noticed yet? Maximum Power will explore the possibility that the New Zealand economy will not surpass its GDP/cap position circa 2008 and we’ll reach global limits to growth sometime this decade. If correct, this will have a profound impacts on NZ’s and the world’s political direction. I imagine it will also have profound impacts on orthodox economic theory which rejects limits to growth.
I’m not 100% confident in that GDP/cap will never recover, but confident enough to risk my reputation exploring the possibility. There are at least 3 or 4 big changes underway that mainstream commentators have either not addressed, dismissed without going into great detail, or have only cautiously stuck their toe in the water. These changes are:
- Peak oil. Orthodox economists tells us that the declining oil supply is merely a routine transition from one resource to others. The biophysical economists on the sidebar are more concerned. Oil is the world’s major energy source and its decline deserves more than the thus far cursory analysis offered by mainstream economic commentators.
- Resource scarcity in general. Peak oil is just the most immediate, largest, and best understood. We tend to find and use the best quality, most easily accessible resources first, requiring greater extraction efforts later. Coal, natural gas, phosphorous are also due to peak sometime this century.
- Debt deleveraging. Formerly orthodox economist Irving Fisher, followed by Hyman Minsky, Wynne Godley and Steve Keen among others have developed a theory of credit booms and busts. I’ve seen Keen lay out the evidence for his position and the weaknesses of orthodox theory. I’ve not yet seen an orthodox economist attempt a rejoinder. The debt-deleveraging dynamic appears to be driving current economic weakness and debt levels are comparable to those prior to the Great Depression*.
- Technological change, demographic change, climate change. I haven’t formed firm ideas about the how each of these may impact the economy. But interestingly on the first point, the herald reports* how a switch to skype from toll calls is negatively impacting GDP figures. The commentators in the article assure us that people are still calling and insist that the measurement of GDP should be revised. The way I’d put it is that Peer 2 Peer (P2P) enabling technologies like Skype and broadband are creating highly efficient ‘use’ value, while destroying ‘exchange’ value. Skype is great for the caller, but bad for the economy.
The blog will tackle these issues in a predefined format with a focus on ‘wonkish’ nitty gritty detail and with intermissions if when something really interesting happens. First up is peak oil and economic theory. Second is debt deleveraging. Third is neoclassical growth theory. Fourth is P2P technologies. Fifth is ‘The State after Growth”, political grand strategy when the economy refuses to grow. Sixth, if we get that far, is specific policy options.
I prefer to, as Keen puts it, to interpret theory from the perspective of data, not the other way round. Here’s a few charts to kick things off starting with a historical perspective on World and NZ GDP/cap. Data are from Maddison and Stats NZ.
Here’s the current downturn compared to historical recessions. We still have a ways to go before the current situation is unprecedented. If we get to 2014 and GDP/cap hasn’t started to turn up it’ll be the worst post war decline. It’s also interesting that between 1879 and 1934, gdp/cap was stagnant or declining for 39 out of 55 years.
And just to stir the pot a bit, here is the original infamous “Limits to Growth” model run from 1972 reprinted in this article [pdf]