More Reasons Why We are Reaching Limits to Growth

In a recent post, I talked about why we may be reaching Limits to Growth of the type foretold in the 1972 book Limits to Growth. I would like to explain some additional reasons now.

Figure 1. Base scenario from 1972 Limits to Growth, printed using today's graphics by Charles Hall and John Day in "Revisiting Limits to Growth After Peak Oil" http://www.esf.edu/efb/hall/2009-05Hall0327.pdf

In my earlier post, I talked about how rising oil prices are associated with rising food prices, and how these high prices can make it harder for borrowers to repay their loans, as is now happening in Europe. These same problems can lead to a contraction of credit availability. A contraction in credit availability can be doubly problematic: it can lead to a cutback in demand because buyers cannot afford goods using oil, such as new cars, and it can lead to a drop in financing for industrial uses, including expanded oil drilling. All of these issues may lead to contraction of the type expected in Limits to Growth. US governmental debt limit problems and European debt defaults are also outcomes of the type expected with rising oil prices.

In this post, I would like to discuss some other basic issues that seem to be associated with Limits to Growth, and that may eventually lead to an abrupt downturn or collapse.

Limits to Growth: More Basic Issues

1. The over-use of resources by humans seems to be of very-long standing origin, dating to the time-period 100,000 BC when there were fewer than 100,000 people on earth. Capitalism today is an extension of this long-term pattern.

2. World systems often seem to work as a gradual build-up of forces followed by a cataclysmic release. Examples include earthquakes and hurricanes. Even getting hungry, and then eating, follows this pattern. A similar pattern may happen with the Limits to Growth that we seem to be reaching.

3. The extent to which humans can gather resources for their own use depends on their geographical reach. As hunter-gatherers, our reach was quite limited. This reach has gradually grown through inventions such as ships, through the settling of new lands and colonialism, and most recently through international globalization. Globalization is necessarily the end of this growth.

4. Globalization sows the seeds of its own demise because factory workers are effectively forced to compete for wages with workers from around the world. Workers in the Global South can get along with lower wages for a number of reasons, including the fact that they tend to live in warmer areas, so do not need to build as sturdy homes and have less need to heat them. With fewer jobs and less investment in the Global North, demand falls and debt defaults become more of a problem.

5. In the normal scheme of things, world systems would rest and regroup once resources reach some sort of crisis point, defined by Liebig’s Law of the Minimum. Soils would build up again; aquifers would refresh; climate would reach a new equilibrium; and a different group of plants and animals would become dominant. Oil and gas supplies might even be rebuilt, over millions of years. It is not clear that humans will be part of the new world order, however.

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Why the US Debt Limit Agreement is Only a Temporary Solution

Most people assume that the mismatch between US federal government revenue and expenses will go away, with enough time. All that is needed is a little “patch” now, and some more time, in order for the mismatch to disappear.

I don’t think the mismatch can be made to go away, partly because the mismatch between government revenue and expense is far worse than most realize. Furthermore, high oil prices seem to lead to recession, making it more difficult to fix the gap between government revenue and expenses.

There is good reason to believe that oil production will not increase materially in the next few years. With oil demand from China and India continuing to increase, the mismatch between oil supply and demand can be expected to get worse with time, leading to more recession, and a greater gap between US federal government revenue and expenses.

Because of these issues, about all recent debt limit agreement can be expected to do is push the problem down the road for a few more months. Eventually, we will be back into recession, and the revenue /disbursements mismatch will be worse than it was the last time around.

Mismatch between Government Revenue and Expenditures is Very Large

The way I look at federal spending is to look federal government revenue and expense on a combined basis (including budgeted programs, off-budget spending, and Social Security) using historical data from the Congressional Budget Office (CBO). Instead of comparing amounts to GDP, I compare amounts to non-governmental wages (Private Industry Wages + Proprietors Income) from the Bureau of Economic Analysis, since I believe this gives a more stable base, and since, as a practical matter, most taxes are on wages.

When we look at Federal Government expenditures and revenue in that way, what we see is as follows:

Figure 1. Federal Government revenues and expenditures on a cash basis, compared to non-governmental wages, based on BEA and CBO data.

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