Economic Theology – Angels Dancing on the Head of a Pin
The title is a reference to the supposed theological question “how many angels can dance on the head of a pin?”, to which the supposed answer was “as many as you like” – a pin is a physical object, while angels are non-corporeal beings.
I consider mainstream economics a kind of modern day theology and the question about angels is my analogy to the question “How much economic growth (GDP growth) can our ecosystems cope with?”. For our neo-classical economist “theologians” the answer is once again “as much as you like”, because economic growth can supposedly “decouple” from physical impacts.
First a reminder what GDP is. GDP stands for “Gross Domestic Product” and is a measure of the total market value of the goods and services produced within a nation’s borders during a year. It can be given as a formula something like the one below:
One way to calculate GPD in practice is to track the monetary exchanges denoting the above goods and services. Then GDP becomes a measure of how frantically money is being exchanged between people, companies, banks etc throughout the economy. And so the dancing angels become monetary exchanges, the pin becomes the Earth, and the “theological question” becomes “how many monetary exchanges can fit on one Earth?”.
Put this way the pertinent question is now: “What do these monetary exchanges represent?”. Mainstream economists argue that an ongoing constant rate of GDP growth in developed countries is desirable. In other words, monetary exchanges are supposed to grow exponentially and forever on a finite planet. This will only be possible if an increasingly small component of GDP growth relates to physical impacts. Otherwise the physical impact of our economies will grow exponentially too and this really is impossible – just as you cannot have an infinite number of people dancing on the head of a pin! Unlike angels, people are corporeal beings.
The above scenario – an ever smaller fraction of GDP representing physical impacts, is referred to by economists as “decoupling”. It is the only way to justify a system predicated on the assumption of exponential GDP growth forever on a finite planet. The real question then is this: “is decoupling reasonable?” My answer is “no, not really”, and here is why.
Let’s do the math. Say we want to decouple GDP growth from physical impact – which is to be fixed at “one planet’s worth”. The economy then consists of two sectors: a “real economy” with a physical impact = 1 in units of GDP and a service sector with no physical impact – denoted as “fluff”. If we start off the economy in the year 2000 as 100% “real” and 0% “fluff” then absolute decoupling corresponds to the plot below:
If total GDP is growing then in order for physical impact to remain constant it must shrink year-on-year as a fraction of this total. Dividing all the curves in the above plot by total GDP, we get the plot below, showing what fraction of the economy will be “real” verses “fluff” over the next 100 years:
After about 50 years the “real” sector of the economy has fallen to around 10% of total economic activity. In another 50 years it falls to less than 1% . The above plots illustrates the scenario known as absolute decoupling – the case where the economy can be made as large as we like, because the fraction of that economy having a physical impact can get as small as we like.
But is this realistic? We are assuming a two-sector economy – “real” and “fluff”. “Real” might be say farming and fishing – things that corresponding to using productive land. “Fluff” might be services like massages and economics lessons. Absolute decoupling assumes that at some point in the not too distant future we can reach a point where 99% of the money circulating in our economies will be spent on “fluff” – economics lessons and massages – while 1% of it will be spent on productive land.
At some point a little later then, as exponential growth continues, you will be able to buy the entire productive land of the planet for the price of a massage! This is clearly absurd – the productive parts of the economy are the physical basis for all the “fluff” conjectured to rest atop it. They will never be valued as low as just 1% or less of total GDP. Moreover there is no real planning going on even to make this absurdity happen. Things are very much left to their own devices. The idea of “absolute decoupling” is more a kind of special pleading to justify the economic status quo, rather than something we are acting decisively to move towards.
There are even other reasons to object to absolute decoupling, like whether the assumption that “fluff” can have absolutely zero physical impact is reasonable – people are not angels after all. And it must have absolutely zero physical impact to realise absolute decoupling. And there is the very reasonable objection that the economy should not become the treadmill of faster and faster exchanges of “fluff” economists arbitrarily demand of us to keep GDP growth going! So absolute decoupling seems quite unrealistic as a possibility and hence at some point the economy will have to stop growing.
Having established that at some point our global economy needs to stop growing we should ask the question “when should it stop growing?” The answer? About thirty years ago! According to the Global Footprint Network‘s ecological footprint metric, we passed a sustainable “one Earth’s worth” level of physical impact for global GDP in around 1980. See the plot below:
What is an ecological footprint? Details are given here, but basically it is calculated by taking the ratio of our demands on the land to the sustainable yield that land can provide. Say a patch of ocean yields a tonne of new fish each year. Each year we catch 1.5 tonnes of fish from this patch of ocean. Then our ecological footprint on this patch of ocean is 1.5. Looking at the above plot, this is happening on a planet wide scale, with 1.5 Earth’s worth of resources being consumed year-on-year today – and set to increase to more than 2 Earth’s worth by 2050, under “business as usual”.
Absolute decoupling is impossible, but some level of it would buy time to avoid ecological collapse (during which we might figure out that exponential GDP growth forever on our finite planet is a recipe for mass-suicide and begin sensibly reducing the scale of our economies). Is some level of relative decoupling (as opposed to absolute decoupling, which is impossible) happening? Not according to this plot from Tim Garret’s website:
The key thing to take from the plot above is that the red curve, corresponding to energy consumption, is tracking the blue curve, corresponding to global GDP. The two are correlated. If relative decoupling were happening already then the red curve would be leveling off as the blue one continued to rise. Unfortunately, it isn’t. When you study the actual data as above, there is an empirical linear relation between GDP and physical impact, with a proportionality constant lambda. To summarise then:
1:– Exponential growth forever on one plant needs absolute decoupling to be sustainable.
2:- Absolute decoupling is an absurd thing to expect.
3:- Therefore we need relative decoupling and de-growth (in developed countries) instead.
4:- Moreover, we needed them to start happening thirty years ago!
5:- Relative decoupling is still not happening today. De-growth is still “thought crime” amongst mainstream economists.
The above points mean our economy is not becoming sustainable and we are figuratively eating our own flesh to feed ourselves, having been in ecological overshoot since the 1980s. I suppose no “serious” economist really expects that economic growth can go on forever. But the same economists are not asking the question “when will growth stop and how will we stop it?”. Until economists, politicians and citizens do begin asking this question en-masse, we should be very worried about the long term survival of our civilization.