The physics of long-run

global economic growth

 


What is the basis for humanity’s economic wealth? What conditions allow for economic innovation and growth? To what extent does our global economy rely on raw materials and energy? Can we decouple global economic growth from climate change?


The coming century is guaranteed to be one of immense change. At current rates we can expect to double our energy demands in just 30 years. We will add as much to our consumption capacity in our working lifetimes as we have in the entire history of civilization.


My work shows how a model for economic growth that uses physics rather than traditional macroeconomics can represent the past with a minimum of bells and whistles and further provide guidance for what we can expect from the future. Instead of focusing on what should be done, it asks rather what will happen given the very general thermodynamic constraints that govern how systems emerge, survive, and grow. At its core is a finding that simply maintaining our current economic wealth requires continual energy sustenance. Like a living organism, civilization requires energy not just to grow but also to maintain its current size or wealth.


Expressed in words, the central concept that links economics to physics is:


All components of civilization, whether human or physical, have no innate value; instead they acquire economic value through  their connections.  Physically, connections enable energy to be consumed that power the circulations that define humanity. Economically, financial wealth is our very human expression of a contribution to global energy consumption, an ability to facility economic circulations, and the extent of these connections.


A fixed link of energy to wealth is really quite important, because it means that the mere existence of a financially measurable economy cannot be decoupled from a continuing rise in energy consumption. And if we do not switch to non-fossil energy sources at an extraordinarily rapid rate,  atmospheric CO2 concentrations will continue to rise.


The idea can be expressed quantitatively using the language of thermodynamics. It is a hypothesis that can be tested, and indeed it holds: including all the world’s nations, 7.1 Watts is required to maintain every one thousand inflation-adjusted 2005 dollars of historically accumulated economic wealth.


To be clear, this relationship does not apply to yearly economic output or GDP and it is independent of the year that is considered. As of 2010, civilization was powered by about 17 trillion Watts of power which supported about 2352 trillion dollars of collective global wealth. In 1970, both quantities were smaller by more than half. In the interim, energy consumption and wealth grew equally rapidly, but at variable rates that increased slowly from 1.4% per year to 2.2% per year.


Expressed in terms of the GDP, every 1000 dollars of year 2005 inflation-adjusted gross world product requires 7.1 additional Watts of global power capacity to be added that year, independent of the year that is considered.


Constants of proportionality are what provide a foundation for linking what initially seem to be two independent quantities (e.g. energy and frequency in quantum mechanics or energy and mass in relativity). Constants form the basis for all that follows. All other physical results are just math.


The constant  of proportionality λ that relates civilization’s economic wealth to its rate of energy consumption tells us not just where we are today but it dramatically simplifies and constrains long-term estimates of where the global economy is headed. Because the constant ties economics to physics, robust economic forecasts become possible. The question of growing wealth shifts from the traditional approach of looking to economic policy to one that is largely a matter of assessing the geological availability of fossil reserves: will we uncover new reserves faster than we deplete them or switch to renewables?


The most easily appreciated implication of the constant value λ is that sustaining the GDP will require constantly growing the global power production capacity; or, sustaining long-run global GDP growth will require constantly accelerating growth of global power capacity, i.e. that the rate of increase must itself increase. The economic becomes a physics, or even a geology question: where will growing power capacity come from in the future? Can we sustain continued economic growth by discovering energy reserves faster than they are depleted? If we can’t, what then? And if we can, what does growing fossil fuel consumption imply for our climate?


Many have pointed to energy efficiency as an escape from resource constraints, arguing that we can get more economic output with less consumption. This is true, but only locally. What arises from the constant λ is a seeming paradox: improving global energy efficiency benefits prosperity so that through a positive feedback, efficiency promotes faster global growth into the reserves that sustain us. With higher accessibility of these reserves, what follows is faster consumption of energy and raw materials.


The problem with accelerating economic growth is that carbon dioxide emissions also accelerate with their associated negative feedbacks on economic growth through climate change...unless the world switches away from fossil fuel power as fast as it grows: the equivalent of about one new nuclear reactor per day (approximately1 Gigawatt).


Ultimately, the goal of this work is to develop the first robust model for the trajectory of civilization that is based to the greatest extent possible on the fundamentals of thermodynamics rather than expert economic opinion. Only with testable principles can we eventually understand where we are headed.


What do you think an economic model should look like? Here’s my contact and a list of publications.