Book Review: The End of Growth

Thinking globally and examining history can reveal the flaws in books forecasting economic doom.

What would happen if world economic growth, on a real, aggregate and average basis, stopped? Would houses be built? Would cars be purchased? Would people still work gainfully and consume? Richard Heinberg’s The End of Growth argues we’re nearing a watershed moment—“transitioning us from decades of economic growth to decades of economic contraction.”

Frequent MarketMinder contributor Michael Hanson recently noted the proliferation of books forecasting world financial or economic demise—they’re reflective of sentiment dips frequently occurring after big bear markets. This isn’t a new phenomenon. Books positing long-term doom fade in and out of popularity: For example, Paul Ehrlich’s The Population Bomb (1968) and the Club of Rome’s Limits to Growth (1972), to name just two. Heck, you could include Thomas Malthus’s An Essay on the Principle of Population (1798) and a litany of books in between. Make no mistake, it’s human nature to fret the future. Optimists tend to be viewed as blissfully ignorant, while pessimists—even if they’re proven ultimately wrong—are skeptical, shrewd and prudent. Trouble is, as popular as these types of books can be, throughout history, books projecting an impending end to growth, prosperity or even humanity are ultimately proven wrong (or, at least, much too dire) as economic growth continues, humanity finds new solutions to previously insurmountable problems, longevity extends, etc. These would-be prophetical books tend to rely on static (and sometimes faulty) assumptions—ignoring the dynamism of human ingenuity, innovation, undiscovered resources, profit motive, etc.

As the name implies, The End of Growth argues aggregate global economic growth will end because of the convergence of several factors—the two central ones being over-indebtedness and resource depletion. The book doesn’t argue quality of life is headed for a cliff—rather, it posits we must adapt to a post-growth, post-hydrocarbon economy. The book urges, among other things, a focus on overall well-being instead of GDP-driven consumption. Fair enough—it’s fine to focus on well-being and happiness if you so choose. But the conviction long-term growth must stall seems misplaced.

First, the book’s position that the US has “too much debt” is certainly a widely held one. But debt isn’t an inherently bad thing. Leverage, used correctly, can be a powerful force for societal good. Debt can help start businesses, create jobs, finance construction, etc. In that light, it’s a critical pillar of capitalism.

To be sure, views of debt are deep-rooted societally—and in that way, a diversity of opinion is understandable. But to make the case US debt is problematic now economically requires a balanced view of evidence. Was the US’s debt problematic in the 1980s and 1990s, when interest payments’ share of GDP was far higher (sometimes double) than today’s 2.2% level? Or in the aftermath of WWII, when America’s net debt exceeded 100% of GDP? If there’s a known level, is it higher or lower than the UK’s historic peak over 250% of GDP during the British Empire’s heyday?

The second major prong of The End of Growth’s argument is natural resource depletion or, more specifically, global “Peak Oil.” The theory posits oil production has achieved its maximum output, new sources of oil will become increasingly difficult to find, output will decrease and extraction will become exceedingly expensive—limiting world economic growth potential.

Peak Oil is a reality—there is a finite amount of carbon-based fuels on the planet. No argument there. But it isn’t necessary to figure out exactly when Peak Oil will occur—no amount of central planning can solve the challenges arising should demand stay constant and alternatives remain untenable. That’s the key. History utterly refutes the idea the status quo will remain. Human ingenuity has prevailed over countless panics, hysterias and crises throughout history. For example, Norman Borlaug’s dwarf wheat helped eliminate 1960s-era overpopulation fears. There’s little reason to think Peak Oil is so fundamentally different.

Dire Peak Oil theorists often perform their accounting based on current assumptions or projections of demand, discovery and economical production. Of course, accurately forecasting things like innovation is difficult. The book acknowledges as much, yet summarily dismisses innovation as being unreliable and adding to extraction cost. But what of prices’ influence? As oil prices rise, known reserves previously too costly to extract become economical. Technological development targets the richer return. Substitution begins making more sense. Alternative sources (natural gas, solar, etc.) become more viable. Consumers adapt.

You can see this, too—known existing reserves of oil, energy, etc. today are more than they were 10 years ago. We’re better at finding oil because we have better tools ... brought by bigger profits ... brought by higher prices. They’re often at deeper points in the sea or in more remote locations—initially, more costly to obtain. But eventually, technology can find new ways of extracting the reserves at a lower relative cost. Again, profit motive is a powerful force for fixing broadly feared calamities. Economics is very often about man’s battle against scarcity—since we haven’t lost before, forecasting we’ll lose this time would seem to require a heavy burden of proof.

Thinking globally and examining history shows flaws in global resource depletion and too-high debt fears. But as The End of Growth argues, perhaps there are different ways to judge society’s advance than GDP or growth. Output isn’t everything. I’m just not sure an economic doom thesis (that seems very improbable when examined) is needed to make that case.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.