Exponential Growth

In the economy

We are all aware of compound interest.  Essentially if we assume a steady interest rate over a long period of time and the interest is added to it each year, there is an ever increasing growth of the investment. For example if we consider a 7% interest rate the investment would double over about 10 years.  Therefore it would quadruple over 20 years, and become eight times the original in 30.

The idea of identifying a period of time in which a doubling takes place is called exponential growth.

This forms the basis of the economic policy of our government and of most governments. The declared target of growth in the UK is 2% per annum.  This, if met each year as planned would result in a doubling of the economy, (also known as the gross domestic product) every 33 years or so. During my life time of approximately twice that time then the economy has roughly quadrupled.

Governments depend on such growth to pay for their current spending. They borrow today, with the expectation that in some years’ time the larger economy expected then, will pay for the interest on the current spending. So we potentially have more to enjoy and all could be well.

However there may be more of us to share this increase of disposable money in the economy, and it may be that it is unequally shared. Even if there was a steady population and all was shared equitably there may be problems of scarce resources to make the goods and environmental costs with the use of these goods.

Some economists argue that these problems can also be dealt with.  This is the attitude of most of our politicians and our leaders, a static economy cannot work and we can handle the regular 2% per annum growth.  I am not an expert in economics and I am at odds with the thinkers and movers in nearly all of our political parties and business people but I believe this idea is flawed.

Let’s look at a similar model, the growth of yeast cells in a suitable medium. Yeast cultures consist of  uni-cellular fungal cells, which when placed with water, and an optimal level of sugar for food will divide, doubling their numbers in a time depending on temperature. These indeed go on doubling their population but eventually they either run out of food, or get poisoned with some of their waste products.

In the case of economics the demands have torn vast holes in the environment, maintaining this 2% exponential growth. People argue that we can develop the technology to isolate the environmental damage from the growth. If this is possible, I do not think there is time.

Is there an alternative to the exponential growth model of economics?

There are books:

 The Limits of Growth, ISBN 0-87663-165-0

Prosperity without Growth: Economics for a Finite Planet, ISBN: 8601404351532

These present discussion about the form a steady state economy might take, which I think would be torn apart with scorn by our present brood of politicians. In my view the gentler fairer possibilities, which could provide for people’s needs throughout the world are largely understood, achievable if we found the will, would be far preferable from the building of walls to exclude people, deregulation to undercut our competitors and stirred up division to project all the systems’ myriad problems on to others.

I suspect that readers may say, “well what about exponential population growth?”. I will try to write another blog about that hopefully fairly soon.

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