The Bullish Case for Growth

A pretty good counterargument to Jeremy Grantham’s prediction for slow growth via Laurence Siegel:

“Consumption cannot grow forever.  Some consumption is of physical, nonrenewable resources, and the volume of cumulative nonrenewable resources consumed cannot exceed the volume that exists on Earth.  Even at a zero growth rate, resources continue to be consumed, subject to physical limits.  Thus, a worldwide slowing of growth at some point in human history is inevitable.

We are, however, nowhere near that point.

The physical environment is in pretty good shape.  It is cleaner in developed countries than it was in those same countries when they were developing, and the same potential exists in countries that are still developing today.  While some resources have been depleted so that the easiest-to-obtain supplies are gone and what remains is costly and difficult to obtain (oil being the most prominent example), that very cost makes the discovery and development of substitutes possible, necessary, and likely.  We have barely breached the surface of nuclear, solar, geothermal, wind, and tidal power.  Recent fossil fuel discoveries have been a pleasant and unforeseen surprise (though we’d be foolish to rely on more such good fortune). People have been finding cheaper substitutes for existing resources since the beginning of human history, and there is no sign that we will stop any time soon.

We have heard concerns about the permanent slowing or stopping of global growth after every depression or severe recession.  In the 1890s, the idea was circulated that everything worth inventing had already been invented.  In the 1930s, it was popular to say that capitalism had created the mechanism of its own destruction.  In the 1970s, concerns focused on foreign competition and resource constraints, and some people forecast mass starvation. Today’s concerns are no different in principle, and they are no more realistic.

The problems we face are real, but they are hardly insurmountable.

Economic growth does not come from discoveries of natural resources (although those help), but from innovations that permit us to do more with less.  That is the economist’s definition of an improvement in technology, and it is the definition we should always bear in mind.  Thus economic growth comes from people trying to better their own lives and those of their children, and it comes from the dissemination of information on how to do so across time and space.  If we can avoid the plagues of war and disease that kept economic growth from catching fire before the 1700s, we can rely on the natural desire to improve one’s lot in life as the engine of economic growth in the future, and we can expect it to continue.”

Read the full piece here.

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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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