Monday, November 26, 2012

How Persistant is Economic Growth in Industrial Civilization?

As the UN Climate Caravan Traveling Road Show jets into Qatar here's a look at one aspect of  the core question in ca. 2013 economics: Growth.
From Decline of the Empire:

Is Global Economic Growth Persistent?
This post is a commentary on University of Utah physicist Tim Garrett's recent paper How persistent is civilization growth? (pdf). Garrett models the global economic system as a physical system which is subject (like any other) to the laws of thermodynamics (see here). In my post Wealth And Energy Consumption Are Inseparable, I discussed a fundamental result in Garrett's work which is of the utmost importance as we consider the future path of global industrial civilization. I'll repeat that result here.
In a prior study (Garrett, 2011), I introduced a simple economic growth model designed to be consistent with general thermodynamic laws. Unlike traditional economic models, civilization is viewed only as a well-mixed global whole with no distinction made between individual nations, economic sectors, labor, or capital investments. At the model core is a hypothesis that the global economy's current rate of primary energy consumption is tied through a constant to a very general representation of its historically accumulated wealth. Observations support this hypothesis, and indicate that the constant's value is λ = 9.7 ± 0.3 milliwatts per 1990 US dollar. It is this link that allows for treatment of seemingly complex economic systems as simple physical systems.
This graph is from Tim's website and illustrates the relationship λ (lambda) between the world's total accumulated wealth (C, the integral) and our ever-accelerating energy consumption rate (a, measured in 1021 joules per year). λ = 9.7 ± 0.3 milliwatts per 1990 US dollar. That's how much energy is required to increase the world's economic wealth as measured in 1990 dollars. The growth rate 1.87% for energy consumption is an average for the period 1970-2006. The average growth rate for the total accumulated wealth was 1.82% over that period. Note that this an empirical result and thus stands outside any particular theory or framework, although it falls out of Garrett's hypothesis (thermodynamic model) that some constant like λ must exist.

In Garrett's persistence paper, the relationship between the energy consumption rate and the world's total accumulated global wealth is expressed in the equation and supporting data below.
Based on this constant relationship (over time) between energy consumption and accumulated wealth, Garrett posits that global economic growth is persistent, meaning we can expect it to continue in the future....MORE
...Garrett's work establishes empirically that there is an inseparable physical link (λ) between the cumulative wealth human civilization has created over time and the rate of energy consumption required to maintain and grow it....