The physics of long-run

global economic growth

 


Where does something get its financial 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?


It is possible to describe a model for economic growth that is based on physical reasoning rather than traditional macroeconomics. This model considers the thermodynamics of how systems emerge, survive, and grow to show that globally aggregated economic wealth requires continual sustenance by energy to maintain all internal economic circulations. Like a living organism, energy consumption is required not just to grow. Like eating food, continuous consumption is required just to maintain civilization’s current size and financially measurable wealth.


All components of civilization, human or physical, acquire their economic value through the strength and number of their connections with everything else.  Connections are what enable us to dissipate the energy that powers the back and forth circulations defining our lives. Economic value expressed in currency is only a very human measure of the magnitude of energy, connections and circulations.


This thermodynamic hypothesis can be tested and quantified. At global scales, a continuous 7.1 Watts is required to maintain every one thousand inflation-adjusted 2005 dollars of historically accumulated economic wealth (not yearly economic output or GDP), 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.


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.


A constant  value 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. Robust economic forecasts become possible. The question of growing wealth 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 and observations show 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. The economic question becomes one of 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 growing fossil fuel consumption imply for our climate?


Many point to energy efficiency as an escape from resource constraints, arguing that we can get more economic output with less consumption. This is only locally true. The paradox that arises from the constant λ is that improving global energy efficiency benefits prosperity. Through a positive feedback efficiency promotes 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).


The goal of this work is to develop a robust model for the trajectory of civilization that is based 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.