The Illusion of Indefinite Growth and Its Economic Consequences: A Critical Analysis
Economists, actuaries, and others often make forecasts as if the current situation will continue indefinitely, ignoring the possibility of change. Politicians seek re-election, university presidents assure students of future job prospects, and no one welcomes unfavorable predictions. However, the assumption of indefinite growth has significant economic consequences.
During the post-World War II era until 1973, low oil prices and the belief in endless oil supply led to optimistic assumptions. The period between 1920 and 1970 saw rapid US oil supply growth, with early oil easily accessible and close to customers. Warnings from physicists, including M. King Hubbert, were often dismissed. Despite this, other countries also produced oil, and the US still had some oil, but extraction became more complex, especially in Alaska.
Low oil prices benefited the economy, allowing for affordable food and other necessities, and providing extra income for discretionary purchases. However, as the economy demanded more complexity, the middle class became crucial for maintaining buying power. When oil prices rose, recessions occurred, and governments resorted to increased debt. The US debt-to-GDP ratio has soared since 2008, with interest payments on debt exceeding defense spending.
The current high debt level is concerning. According to one analysis, if the government debt-to-GDP ratio exceeds 90%, economic growth is inhibited. The US ratio is already at 120%, and interest payments on debt surpass defense spending. This situation raises the need for tax increases to cover debt interest.
Researchers studying long-term cycles, or 'secular cycles,' identify issues like growing debt during stagflation. These cycles, as examined by Peter Turchin and Sergey Nefedov in their book 'Secular Cycles,' involve temporary population surges due to land acquisition, followed by population collapse over 20 to 50 years. This aligns with Joseph Tainter's 'The Collapse of Complex Societies.'
The author's analysis suggests that fossil fuel extenders like wind, solar, and nuclear require high EROIs but may not prevent collapse. Population growth and pollution would still pose challenges, and the system would eventually reach its limits. The author's presentation, with 51 slides, is available for further exploration.
This critical analysis highlights the illusion of indefinite growth and its economic implications, urging a reevaluation of assumptions and policies to address the potential consequences.
