Limits to Growth and Extrapolation of Trends

I already once wrote about what may be regarded the conventional economist’s obsession – virtually every time they wants to refute allegations that there may exist limits to economic growth, economists use the 1972 report to the Club of Rome, The Limits to Growth, as a virtual “opponent”. As if Donella Meadows and her co-authors were the only ones concerned about the infinite growth assumption in conventional economics, and as if their argument were the only one (or even: the most convincing one) speaking for the limits to growth hypothesis. But even when we focus on The Limits to Growth, there is a serious fallacy in the economists’ criticism.

The main argument put forward against Meadows et al. is that their analysis is based on a simulation of population and economic development trends. As such, it is largely an extrapolation of existing trends. Given that those do continue, so the original argument of Meadows et al., crucial resources (including petroleum and land) will soon have become extremely scarce, and the world economy and population will collapse as consequence. But, so the economist’s counter-argument, you cannot just extrapolate past trends because new petroleum reserves will be found, new technologies will be developed, population growth will slow down as a result of increasing wealth (achieved through… economic growth). In other words, human ingenuity and cultural transition will make sure that the world economy will continue growing – forever.

You may have noticed, however – even though the direction of both arguments is different (Meadows et al.’s speaking for the existence of limits to growth, the economist’s against it), their structure is astonishingly similar. Indeed, the economist does exactly what she accuses The Limits to Growth of – she extrapolates current trends, though in a less obvious way. She assumes that productivity growth / technological progress will keep going and that it will keep providing us with backstop technologies when we need them – technologies yet to be invented, which will help us overcome every bottleneck caused by the increasing scarcity of resources. Also, she assumes that, just as it was the case in today’s rich countries, demographic transition toward stationary (or even declining) populations will take place as a result of wealth increases in today’s poor (and populous) countries.

But will they? They may, but there is actually no reason to assume that. Yes, it seems that increasing wealth does stimulate demographic transition, all over the world (even though it is still a point of controversy whether wealth is causing fertility to decrease or the other way around). But its pace varies largely across even culturally relatively similar countries (consider the fertility rates in France (1.89) and Germany (1.41)). There is no guarantee that the end point of this development will be – in every country of this world – at or below replacement level. Nor is there any guarantee that the transition will take place quickly enough. Indeed, especially Africa, with its high population and partly still low economic growth rates, is at serious risk of becoming extremely overpopulated.

This logic is even more valid for technological progress and its capability to provide backstop technologies. In its current form and at its current pace, technological progress is relatively new phenomenon – some 150 years young at best. Conversely, humanity experienced very slow changes in technology over millenia before. It may be argued that, beyond some point reached probably in the 18th or 19th century, continuing resource scarcity has been pushing human ingenuity to invent useful new technologies every time we needed them. But we do not know whether this is a general rule. Some argue that technological progress is already becoming slower and that there is a reason for that. Indeed, everyday experience seems to suggest that significant improvements in technology are becoming ever more difficult and less frequent, while at the same time becoming ever more pressing. And even if common sense is fooling us here, Stephen DeCanio’s remark remains valid:

The fact technological progress has been welfare-improving over humanity’s historical experience is an empirical observation, not a logical necessity. [DeCanio (2003), Economic Models of Climate Change: A Critique]

Economists, at least most of them, stick to the dogma that a) we need economic growth and b) continued (infinite) economic growth is possible, i.e., there are no limits to growth. In arguing that, they like using the Limits to Growth report to the Club of Rome as the “personification” of the counter-argument and point out, probably rightly, that as it is based on trend extrapolations with limited amount of theory behind them, its forecasts are not reliable. However, as shown here, the economist’s own argument is based on a very similar fallacy, namely the extrapolation of current trends of technological progress. Since we cannot know whether such extrapolations are right, and since there are more robust, theoretical arguments speaking for the existence of limits to growth, it appears to be a dangerous practice to assume optimistically that human ingenuity, paired with incentives provided by resource scarcity, will solve all potential problems that may limit the world economy’s ability to grow. A much more reasonable and realistic course of action would be to think about how to redesign the economic system so as to make it less dependent of continued economic growth.

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5 thoughts on “Limits to Growth and Extrapolation of Trends

  1. The Limits to Growth is a 1972 book about the computer modeling of unchecked economic and population growth with finite resource supplies.

  2. Conventional economists also frequently misrepresent “The Limits to Growth”. I’ve blogged on this issue a couple of times:

    http://therationalpessimist.com/2013/01/19/the-club-of-rome-skeptics-and-myths-we-believe/

    http://therationalpessimist.com/2012/01/25/the-limits-to-growth-urban-legends-economists-and-dieter-helm/

    I mention, in one of the posts, Ugo Bardi’s book “The Limits to Growth Revisited”, which is superb (if you haven’t already read it).

  3. I haven’t read the book. Maybe someday I will find the time to take a look into it;-) Recently I read an interesting article by a computer modeller about “The Limits to Growth” and its Earth3 model – although acknowledging the general message of Meadows et al’s work, he also wrote that the model is rather bad and very ad hoc in its shape. I guess, that and some overly decisive formulations regarding future trends make it easy for critics to create the following fallacious impression: 1. Earth3 and the specific predictions are problematic/wrong → 2. “Limits to Growth” as a whole is only doom-saying → 3. There are no limits to growth. Certainly, the last step is too much of a short-cut.

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