The physics of long-run

global economic growth


Where does money get its value? What is the basis for economic wealth? What conditions allow for economic innovation and growth? Is our global economy fundamentally supported by a consumption of raw materials and energy? And if most of our energy comes from burning finite resources of fossil fuels, what does this imply for future global economic growth and climate change?

A model for economic growth can be devised that is based on intuitive thermodynamic reasoning rather than traditional macroeconomics, looking to how organic systems emerge, survive, and grow for guidance. From this standpoint, globally aggregated, physical and human capital or wealth require continual sustenance to maintain all internal economic circulations. Like sustaining an organism, sustaining wealth requires constant consumption and dissipation of energy resources.

This perspective appears to work: for each of the past 40 years for which records are available, a continuous 7.1 Watts has been required to maintain every one thousand inflation-adjusted 2005 dollars of historically accumulated economic wealth (not yearly economic output or GDP). 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.

In physics, constants of proportionality can be extremely useful as they 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 are what form the basis for all that follows. All other physical results are just math.

Here, the finding of a constant  value λ that relates civilization’s economic wealth to its rate of energy consumption may be similarly fundamental. It dramatically simplifies and constrains long-term estimates of where the global economy is headed. The question shifts from the traditional approach of looking to economic policy to one of assessing the geological availability of fossil reserves: will we uncover new reserves faster than we deplete them?

For example, theory, checked with observations, shows that sustaining global wealth requires constant global power capacity, sustaining the GDP requires growing power capacity, and long-run global GDP growth requires a constantly accelerating growth of global power capacity, i.e. that the rate of increase must itself increase. Where will this 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 this imply for our climate?

Many point to energy efficiency as an escape, arguing that we can get more economic output with less consumption. The seeming paradox that arises from the constant λ is that improving global energy efficiency does not offer a solution. Efficiency benefits prosperity. Through a positive feedback what follows is faster global growth into the reserves that sustain us. With higher accessibility of these reserves there is then faster consumption of energy and raw materials. Carbon dioxide emissions also accelerate with their associated negative feedbacks on economic growth...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).

These conclusions are naturally a bit depressing, and perhaps unpopular. Hopefully though, a robust model for the trajectory of civilization can help us to understand where we are headed.

Questions, comments, reprints?

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